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Voting Rights in Corporate Governance: History and Political Economy

February 2024February 2024Sarah C. Haan*

Political voting rights have become the subject of sharp legal wrangling in American political elections and the focus of headlines and popular debate. Less attention has focused on American corporate elections, where something similar has been happening: the last two decades have witnessed significant unsettling of basic shareholder voting rights, including laws and practices that were mostly stable throughout the twentieth century. Today, shareholder voting rights are in flux and, increasingly, in controversy. This Article connects the current moment of instability to the last significant era of change in shareholder voting rights—the nineteenth century—and brings historical context to a new era of dynamic change.

A small but potent literature has explored the historical evolution of nineteenth-century shareholder voting rights in corporate law, establishing that per-share vote allocations changed significantly over that century. This literature, which focuses on the shift from “democratic” vote allocations (one-person-one-vote and restricted voting) to “plutocratic” voting (one-share-one-vote), has treated vote allocations as the exclusive determinant of shareholder voting power. The literature has raised as many questions as it has answered, and it ultimately has failed to produce agreement among scholars or a cohesive narrative to explain how or why the modern framework for shareholder voting rights emerged.

This Article presents an alternative account of transformations in shareholder voting rights that tracks three evolving sets of legal rules. It shows how the voting-rights framework that was cemented by the end of the century—the framework that would go on to define twentieth-century corporate control—was determined by the interrelation of the three. One regulated the shareholder’s right to delegate votes (proxy voting), another set per-share vote allocations, and a third addressed the shareholder’s right to cumulate votes (cumulative voting). The Article shows why these three sets of rights must be understood as coactive and interdependent. It contributes new ideas to the longstanding debate about why American corporate law shifted to the rule of one-share-one-vote and concludes by returning to the present moment, arguing that shareholder voting rights have become newly unsettled through shifts along these same fault lines.

INTRODUCTION

Voting rights became the subject of sharp legal wrangling in American political elections when the U.S. Supreme Court decided Bush v. Gore in 2000 and Shelby County v. Holder in 2013.¹ The result has been a resurgence of legal action, academic debate, and media attention focused on Americans’ voting rights. Today, the political franchise is dynamically evolving through legislation and court battles—a process that is commanding headlines and reshaping fundamental relationships of political power in American institutions.

Something similar has been happening to shareholder voting rights in the United States over the same period, though it has garnered much less attention. Shareholder voting laws and practices that were mostly stable throughout the twentieth century, and which capital markets participants took for granted, have become newly contested in the twenty-first century. Many aspects of shareholder voting rights are now in flux, with major debates and regulatory battles playing out over such issues as dual-class structures, ballot access, broker voting, and the universal proxy. The corporate law literature has noted many of these developments—but mostly in isolation and without a broad sweep of perspective.

In particular, over the last two decades, a small literature has emerged at the intersection of corporate law and economic history to examine the history of shareholder voting rights.² Its focus has been narrow. The literature has explored changes to per-share vote allocations over the nineteenth century, noting how the law moved away from restricted voting—which placed limits on the voting power of a corporation’s large shareholders—in favor of one-share-one-vote. This literature uses the term “shareholder voting rights” exclusively to mean per-share vote allocation, and, though it has shed light on some corners of early-nineteenth-century corporate practice, it has raised as many questions as it has answered. To date, there is no consensus among scholars about the purpose served by restricted corporate voting in the nineteenth century, and no consensus about why, by the turn of the twentieth century, it had been replaced by one-share-one-vote.

This Article ties the past to the present day, contributing to the debate over nineteenth-century corporate law history and providing some perspective on current developments. It argues that, in the nineteenth century, shareholder voting rights actually evolved along three parallel tracks. It presents a holistic and ultimately more satisfying account of this history than the literature has previously provided and connects this history of dynamic legal change to the current moment, when, once again, power struggles among the same set of players—corporate managers, large shareholders (now asset managers), and small shareholders—are reshaping shareholder voting rights along these same dimensions.

The first dimension of nineteenth-century legal change involved proxy voting, a system of rules by which a shareholder could delegate his or her vote. Because it expanded the geographic scope of a corporation’s investor base, proxy voting was important for corporate finance in a nationalizing economy. It was also a major, pro-shareholder convenience and held the potential to empower small shareholders through collective action. In practice, however, proxy voting became a mechanism for sidelining shareholders in corporate governance, mainly for the benefit of corporate managers. The group most aggrieved by this sidelining, which was described as “proxy abuse,” was large block holders—wealthy elites—who had the most invested and thus the most to lose if unscrupulous or low-quality management entrenched itself through the proxy system. State corporate laws relating to proxy voting changed considerably over the nineteenth century, moving from a regime in which proxy voting was disfavored to one in which shareholders enjoyed a nearly inviolable right to delegate their votes. Restrictions on proxy voting, enacted by many state legislatures during the nineteenth century to curb proxy abuse, were virtually swept away in the last quarter of the century, creating the modern proxy system.

The second dimension of change involved the allocation of votes per share of stock. In the early nineteenth century, a significant proportion of corporations limited the voting power of large block holders.³ Over time, however, law and practice began to shift in favor of “plutocratic” voting, or one-share-one-vote.⁴ Though this shift likely had several causes, this Article focuses in particular on a cause that has not been recognized in the literature: one-share-one-vote was a way for wealthy investors, particularly at large, widely held companies, to protect against managerial proxy abuse—a significant problem that was just becoming apparent with the expansion of proxy voting. Strengthening the voting power of the largest block holders helped offset managers’ abilities to aggregate and vote the proxies of small shareholders.

The interdependence of proxy voting and vote allocations was self-evident. A shareholder’s theoretical vote allocation mattered little if the shareholder could not cast any vote. Nineteenth-century proxy laws sometimes disenfranchised whole categories of shareholders, such as non-U.S. residents, out-of-state citizens, shareholders behind in their subscription payments, fiduciaries, and shareholders residing a long distance from the meeting place. For a time in Pennsylvania, male shareholders could vote by proxy only if they resided at a distance of ten miles or more from the shareholders’ meeting; the rule was different, and more generous, for female shareholders.⁵ The most significant categorical prohibition restricted officers and directors of a corporation from voting other holders’ shares by proxy, in some cases under threat of criminal penalty.⁶ This prohibition is notable not only because it had significant implications for corporate power at the time, but also because proxy voting by a corporation’s management is, today, the dominant form of corporate voting.⁷

The shift to one-share-one-vote partially tempered problems associated with the emerging proxy system, at least at widely held corporations. However, this shift disempowered small stockholders in relation to wealthy, large holders, catalyzing yet a third counter-balancing trend: the rise of cumulative voting, often as a state constitutional right, starting in the 1870s. Cumulative voting allowed shareholders to aggregate their votes for director candidates, providing a means for small shareholders to gain information and a voice on the board. By 1900, a dozen states had added a right to cumulative voting to their constitutions, while other states mandated cumulative voting through statutory law. However, the most popular states for business incorporations in the twentieth century—Delaware, New Jersey, and New York—never embraced it, preferring an enabling approach that was mostly in place by the turn of that century.⁸

The creation of the proxy system marked a split between corporate and political governance that set the two regimes on diverging regulatory paths.⁹ It invited proxy solicitation, the practice in which savvy actors pursued shareholders to request—or even purchase—their delegated votes. Proxy solicitation would go on to absorb vast corporate resources and become a major focus of regulation. It is, today, the heart of federal regulation of corporate governance. Yet for the better part of two centuries, proxy voting practices sharply limited shareholders’ franchise in one important way: shareholders voting by proxy could not easily choose among competing candidates in a contested election. In the summer of 2021, the U.S. Securities and Exchange Commission (“SEC”) amended its regulations of the proxy system by introducing the “universal proxy,” which places all candidates for election to the board on a single proxy form that resembles a political ballot.¹⁰ Starting in late 2022, companies soliciting proxies were required to present shareholders with the full slate of candidates in contested elections, and, for the first time in American corporate history, shareholders began exercising voting choice that resembles political voting.¹¹

The new universal proxy potentially upends one of the three dimensions of shareholder voting rights: proxy voting. It is one of several ways in which proxy voting has recently been reshaped, including reforms to broker voting rules and, at major asset managers, the emergence of pass-through voting. These changes come on the heels of a recent, significant change to per-share vote allocations: the popularization of dual-class structures, which give extra voting strength to stock held by large, powerful holders. Both the universal proxy and dual-class structures unsettle paradigms that date back to the nineteenth-century history recounted in this Article. Framed in the context of the three-dimensional evolution of shareholder voting rights, these twenty-first-century developments potentially signal a new era of dynamic change to shareholder voting rights—change on a level not seen since the nineteenth century.

Part I describes delegated or “proxy” voting and the rise of the American proxy system. Part II shows how the decreasing use of restricted voting, and the increasing use of one-share-one-vote, were related to the emerging proxy system and, in particular, to problems with that system. Part III introduces cumulative voting and connects its rise in the 1870s to the proxy system and the popularity of one-share-one-vote. It includes a synthesis of the three-track history and the shareholder voting rights framework at the end of the nineteenth century. An epilogue, Part IV, sketches the rising tide of new legal change to shareholder voting rights in the twenty-first century. These changes include the appearance of dual-class structures, the new universal proxy, reforms of broker voting, pass-through voting, and client-directed voting, which in combination recall the nineteenth-century era of voting-rights dynamism.¹²

I. THE SHAREHOLDER’S RIGHT TO DELEGATE THE VOTE

The earliest corporate laws assumed that shareholders would vote in person, gathered together in a meeting hall.¹³ However, in the eighteenth and early nineteenth centuries, at a time when American corporations were mostly formed through special legislative acts, it was common for legislatures to approve charters that authorized shareholders to vote without attending a shareholders’ meeting by delegating their votes to a person who did attend the meeting.¹⁴ This was called voting by proxy, or by attorney. One study of New York corporate charters secured between 1790 and 1825 found that 82% of corporations entitled shareholders to vote by proxy; every bank charter provided this right, while only 21% of the charters for bridge corporations did.¹⁵

Over the nineteenth century, the laws and practices that regulated proxy voting became complex, evolving in ways that shaped the balance of power within corporations. These laws and practices comprised what came to be known as the “proxy system,” establishing the contours of corporate control. Today, the proxy system remains the main instrument—the beating heart—of corporate power. Since the New Deal, for publicly traded companies, it has also been the crux of federal regulation of corporate governance.

During the first half of the nineteenth century, courts of virtually all states agreed that, in the absence of a statute or provision in the legislative charter conferring a right to vote by proxy, shareholders could vote only in person at a shareholders’ meeting.¹⁶ This nearly unanimous approach by the states reflected a preference for shareholder governance that encouraged a democratic-style exchange of ideas among decision makers. In 1834, New Jersey’s Supreme Court put it this way:

It may be for the personal convenience of members, but it cannot be for the good of the corporation, that its business or election should be conducted by proxies. The interest of the company, the good of the public, would be better promoted and more effectually secured by the personal attendance of, and mutual interchange of opinions among the members, than by the action of proxies.¹⁷

In 1856, Pennsylvania’s Supreme Court wrote that, since corporate shareholders were “embarked in a common enterprise,” it was reasonable to require that director elections “take place under circumstances favorable to a consultation with each other, so that [shareholders] might have the benefit of each other’s views and information relative to their common interest.”¹⁸

A. Proxy Solicitation

Early lawmakers probably imagined that shareholders would vote by proxy only when necessary, using care in the selection of a person to exercise their delegated votes. In reality, proxy voting became the dominant mode of corporate voting (and remains so today), and the proxy system produced an elaborate machinery for the solicitation of proxies.¹⁹ Parties soliciting proxies reached out and asked shareholders for their delegated votes—and shareholders handed them over. This led to the development of strategies to cajole proxies from shareholders, ranging from the use of postage-paid mailers, to private investigators, to, eventually, the rise of professional proxy solicitors.²⁰

Two things are noteworthy about the emergence of this solicitation regime. First, actors seeking proxies quickly learned to use lies and misrepresentations to get them. This led to the enactment of laws regulating speech about corporate elections. In the early twentieth century, state lawmakers began enacting statutes that prohibited false or misleading statements in connection with a request for a shareholder’s proxy. This marked a serious point of divergence between political governance and corporate governance in American law. To this day, American law strongly protects false and misleading speech intended to influence political elections,²¹ yet condemns false and misleading speech designed to influence corporate elections.²² During the New Deal of the 1930s, proxy solicitation provided the “hook” for a significant regime of federal speech regulation related to corporate elections, administered by the SEC.

Second, early practices allowed a party soliciting proxies to create the form of proxy (or “proxy card”) used by the shareholder to sign away her vote. Forms sometimes did not specify how a proxy vote would be cast; eventually, a practice developed in which the proxy card listed only the soliciting-proxyholder’s preferred candidates, omitting the names of any other candidates running for election to the board. Shareholders signed the form weeks or even months in advance and may not have known that other candidates were running. They were, in effect, giving up any right to choose among candidates in a contested election. This practice, which was extremely effective at suppressing votes for dissident candidates, became hard-baked into corporate practice and only ceased in late 2022, when a new securities regulation went into effect. Under new SEC rules, parties soliciting proxies (typically the corporation itself) must use a “universal proxy” that lists all candidates for election, giving shareholders a choice—and a proxy form that looks, for the first time, like an electoral ballot. The effect of this change is difficult to predict, but it is already upsetting the balance of power inside firms, as shareholders voting by proxy exercise real choice for the first time.²³

B. Benefits of Proxy Voting

Proxy voting was a major convenience for shareholders at a time when transportation and communication technologies were rudimentary. For many shareholders, especially those of modest means, travel to a shareholders’ meeting was too costly and time-consuming to make the trip worthwhile.²⁴ As the nineteenth century unfolded, large, capital-intensive businesses were increasingly financed by far-flung investors. This was especially true of banks in the early decades of the century. By the 1880s, a significant proportion of railroad stocks, sometimes a majority of a corporation’s stock, was held in Europe.²⁵ The value of proxy voting to foreign investors increased the pressure for legislatures to liberalize proxy voting rights.

Proxy voting could also prevent small shareholders from being disenfranchised altogether by common, practical challenges, such as work responsibilities and even gender-based obligations. Some early corporate laws specified that only women could vote by proxy, for example, recognizing contemporaneous social practices that kept women home-bound.²⁶ New Hampshire enacted a law in 1856 prohibiting railroad proxyholders from exercising more than fifty proxy votes—and then, the following year, amended it to restore the right of proxy voting to “female stockholders.”²⁷ Laws allowing women, but not men, to vote by proxy revealed a desire by legislatures to protect the franchise of small and vulnerable shareholders.

As this suggests, not all shareholders could vote by proxy; some states employed categorical prohibitions that limited the privilege of proxy voting to a select few. For example, in the early 1800s, it was common for proxy voting to be limited to U.S. residents or state residents only.²⁸ In addition, the fiduciary law of many states did not allow guardians, trustees, or executors to delegate votes.²⁹ In these states—under laws that continued well into the twentieth century—fiduciaries could vote in person only, which probably meant that much stock held in the name of fiduciaries was not voted at all. In addition, some states restricted the class of people who could vote as proxyholders to those owning their own stock in the company,³⁰ while other states prohibited shareholders from exercising others’ proxy votes.³¹

As the geography of corporate finance expanded, as shareholding atomized (dividing into small stakes), and as women and workers joined the ranks of shareholders, shareholder attendance at meetings fell. This created a risk that too few shares (or shareholders) would be present at shareholder meetings to satisfy quorum rules, preventing the annual election of directors, which was required under most states’ laws.³² Thus, proxy voting was sometimes presented as essential to basic corporate governance and to the ordinary operation of firms.

In addition to offering convenience in a nationalizing (and globalizing) economy, proxy voting held unique potential as a mechanism for shareholder collective action. At least in theory, proxy voting could have allowed shareholders to act together by giving their proxies to the same person or group, who could vote them all for the same purpose. In practice, however, the collective action benefits for small shareholders never materialized. Instead, a different group of actors learned to use proxy voting to their advantage.

C. Proxy Abuse

Despite its promise for shareholder empowerment, proxy voting swiftly became known as a mechanism for abuse. Over the first half of the nineteenth century, business leaders, especially corporate officers, learned to harvest proxy votes from absent shareholders and vote them to control the outcome of elections for their own, personal benefit.³³

It has been the practice, lately, of some of those interested in carrying any measure in a corporation, to send their agents to the different stockholders to obtain their proxies, so that a contest regarding the policy or propriety of a proposed measure, was not as to what was right or politic, but as to who shall succeed in obtaining the most proxies.

Recent Legislation—New Hampshire, 9 Monthly L. Rep. 326, 328 (1856). The tactics used to solicit, aggregate, and exercise proxy votes in annual corporate elections grew increasingly sophisticated over the nineteenth century. Proxy abuse sparked public outrage but proved challenging for legislatures to discourage through statutory law.

Because shareholders had few informational rights under nineteenth-century corporate law, attendance at the shareholders’ meeting was the main way for shareholders to obtain basic information about the corporation’s financial condition.³⁴ If managers did not provide sufficient information at the meeting, shareholders who were present could ask questions and raise matters for discussion. Of course, shareholders who did not attend the meeting, but instead voted by proxy, could not obtain information about the corporation through this traditional manner. Though proxy voting became increasingly popular over the nineteenth century, laws requiring the provision of information to absent shareholders lagged.³⁵ As a result, during the early decades of the nineteenth century, shareholders who delegated their votes to proxyholders risked being left completely in the dark about the corporation’s operations and prospects.

In 1850, a New York banker described how a corporation’s “reigning directors” could collaborate “to perpetuate their own control.”³⁶ “[S]ome leader among them,” the “emperium in emperio,” would “carefully gather[] up proxies, under the facility of knowing the residence of every stockholder, and being officially in correspondence with him.”³⁷ The banker was pointing out the serious advantages that corporate managers had over ordinary shareholders when it came to proxy solicitation.³⁸ A corporation’s managers had access to the transfer book and the stockholder list and could impede the access of others. They knew who owned how many shares of stock and where the shareholders lived. And because of the nature of the relationship between shareholder and corporation, the management had regular communication with all its shareholders, financed by the corporation itself.

Corporate managers were prominent members of the community, and this gave them an edge in soliciting proxies. “[T]he respectability of the directors and their officers gives them an influence,” one writer asserted, “[and] their particular stations give them opportunities to procure as often as transfers are made at the bank, proxies from the new stockholders to vote in their names at elections.”³⁹ The writer went on,

You my friend know something of human nature, and can judge whether a request for this purpose coming from such a quarter, made with gentleness and affability, but with an apparent expectation that as a matter of course it will be granted.—You can judge whether it is likely in many instances to be refused.⁴⁰

In other words, managers were tempted to exploit their position to obtain proxies, which the author suggested was “an inconvenience inseperable [sic] from the system of voting by proxy.”⁴¹

Evidence suggests that some officers and directors used dishonest tactics to obtain proxies. A Massachusetts author described in his 1863 book, Some of the Usages and Abuses in the Management of Our Manufacturing Corporations, “tricks, subterfuges, and expedients” used by corporate managers to exploit the proxy system.⁴² One practice, he alleged, was for the corporate treasurer’s office to require shareholders to sign their name twice to receive a dividend payment: “one book or paper, which is a receipt, and another, which is a proxy.”⁴³ As he explained, the stockholders often did not understand that they had signed away their votes:

By this process a majority of the proxies of any corporation is easily taken, and kept in possession of the officers to be used by them, or their partizans [sic], at the annual meeting, for their own purposes; which, of course, gives them entire control of the franchise of the Corporation.⁴⁴

Widely held, dispersed stock made a corporation vulnerable to proxy abuse. Corporations with atomized shareholdings were likely to have many small shareholders who failed to vote at all. When many shareholders abstained from voting, the number of proxy votes needed to win an election fell, making it easier to seize control by proxy. If shares were held by speculators, those holders probably had little interest in voting in corporate elections and may have been open to selling their proxies.⁴⁵ Overseas investors often held stock through brokers, who were known to sell proxies. Over time, many kinds of investors—rural, working-class, and overseas investors—probably became habituated to proxy voting, easily signing away their delegated votes.

D. Statutory Limits on Proxy Voting

The earliest restrictions on proxy voting were enacted for banking corporations, which were the most widely held corporations in the early nineteenth century.⁴⁶ Pennsylvania’s legislature passed its first law placing limits on proxy voting at banks in 1812⁴⁷ and enacted a law with more extensive limits on proxy voting, at a broader range of corporations, in 1820.⁴⁸ Special legislative charters for Ohio banks included provisions prohibiting proxy voting by salaried officers as early as 1813.⁴⁹ Ohio was broadly prohibiting proxy voting by salaried bank officers by 1816.⁵⁰ In March 1837, the legislatures of both Virginia and Massachusetts discussed limits on proxy voting at bank corporations;⁵¹ Virginia enacted a prohibition that year,⁵² and Massachusetts did so in 1840.⁵³

In an address in January 1840, Pennsylvania Governor David Rittenhouse Porter called on the state’s legislature to forbid proxy voting in banks altogether—or, if that was “going too far,” at least to prohibit shareholders from giving proxies to a bank’s own officers, directors, or agents.⁵⁴ Proxy voting “prevents those who are interested in banks from investigating their management,” he said, presumably because managers would vote the proxies to defeat any investigation of their own actions.⁵⁵ When Pennsylvania’s House of Representatives debated a banking bill a few years later in 1842, its members argued over whether to eliminate proxy voting at banks only or also at insurance companies.⁵⁶ One legislator announced that proxy voting was “well known” to have given rise to “the grossest abuses,” and another claimed that it had “destroyed the banking system of the country.”⁵⁷

Pennsylvania’s legislature finally ended proxy voting in the state’s banks in April 1843.⁵⁸ Six years later, it issued special limits on proxy voting for manufacturing corporations, too, including a prohibition against any party voting the proxies of more than two absent shareholders.⁵⁹ The same statute limited large shareholders to no more than one-third of the votes, regardless of their shareholding or the size or capital structure of the firm.⁶⁰ In other words, it limited the power of both corporate managers and wealthy block-holders, making small shareholders the beneficiaries of both changes.⁶¹

In New York, in December 1857, a controversy arose about managerial proxy abuse at the New York Central Railroad. Soon thereafter, Horatio J. Stow, a state senator, introduced a bill prohibiting officers of railroad corporations and banking corporations from exercising proxy votes.⁶² Writing anonymously in the New York Times, one New York Central stockholder bemoaned how proxy voting had become “objectionable,” in spite of its convenience.⁶³ “[N]o Board of Directors should exist,” he wrote, “as that one man by proxies, or any other way, should make the Board in fact a board of mere subservients, without paying any decent regard to the feelings and votes of stockholders who are active enough to bestir themselves and offer their own votes personally.”⁶⁴ Despite these concerns, Senator Stow’s bill did not become law, and the managers of New York railroads continued to harvest shareholders’ proxies.

In the 1860s, a shareholders’ meeting of the Albany & Susquehanna Railroad revealed the sort of extraordinary misconduct to which New York’s proxy system was vulnerable. Seeking to control the outcome of the meeting, a shareholder hired a group of New Yorkers to vote as proxies—“a rough, low class of men, such as in common parlance would doubtless be classed among the roughs and fighting men of that city.”⁶⁵ The mastermind of the scheme paid the men to travel by train to Albany, fed them, distributed proxies among them, and brought them to the small meeting room, which they filled to capacity. Other shareholders were either excluded for lack of space or intimidated into silence. A judge concluded that these practices were “a gross perversion and abuse of the right to vote by proxy, and a clear infringement of the rights of the bona fide stockholders of the company.”⁶⁶

In 1864, a group associated with the struggling Chicago & Northwestern Railroad Company harvested proxies for the profitable Galena & Chicago Union Railroad Company—in part by buying proxies from New York “money brokers”⁶⁷—and orchestrated the consolidation of the two railroad corporations, essentially bootstrapping a failing company to a successful one. In litigation that followed, Galena shareholders described an elaborate proxy scheme that took advantage of the fact that few Galena shareholders typically attended shareholders’ meetings.⁶⁸ At the June 1864 meeting in which control of the Galena had been seized via proxy, only about 900 of the corporation’s 60,284 outstanding shares were represented in person.⁶⁹ Shareholders alleged that proxies had been obtained dishonestly.⁷⁰ Instead of invalidating the consolidation, a federal judge ordered the Chicago & Northwestern to pay complaining Galena shareholders more for their stock.⁷¹ However, the high-profile case may have set the stage for Illinois to become,⁷² just a few years later, the first state in the U.S. to adopt corporate cumulative voting to protect the rights of minority stockholders.⁷³

Massachusetts was among the first states to limit the exercise of proxy votes by railroad officers, in 1843.⁷⁴ Its legislature limited railroad directors, treasurers, and other officers to twenty votes when acting as a proxy.⁷⁵ In 1865, Massachusetts expanded these prohibitions in substance and scope.⁷⁶ The new law was not limited to railroads but applied broadly to “any corporation.” It authorized an officer or director to vote no more than twenty shares as a proxy, unless all the shares voted by proxy came from one person. It prohibited a salaried officer from voting as a proxy at all. And it specifically prohibited officers and directors from “ask[ing] for, receiv[ing], procur[ing] to be obtained or us[ing] any proxy vote in the corporation” beyond those limits.⁷⁷ An officer or director who violated the act could be fined up to $500, removed from corporate office, and “forever” disqualified from holding any office in that corporation again.⁷⁸ In the decades that followed, Massachusetts’s legislature affirmed these prohibitions in various acts relating to cemetery corporations,⁷⁹ manufacturing corporations,⁸⁰ street railway corporations,⁸¹ and railroad corporations,⁸² and, in 1870, capped proxy votes exercised by persons other than officers and directors at fifty votes.⁸³

However, a reversal was on the horizon. In early 1888, the president of the Fitchburg Railroad Company, Elijah Brigham Phillips, was caught in an elaborate, illegal scheme to solicit proxies from shareholders and distribute them to paid agents, including fifty “tramps” recruited from a Boston charity, who voted as proxyholders to ensure Phillips’s reelection to the board.⁸⁴ As controversy swirled about Phillips’s upcoming trial, the Massachusetts legislature repealed the fifty-vote cap on proxy votes exercisable by independent proxyholders, signaling their willingness to remake this area of law.⁸⁵

There was little question that Phillips was guilty: at trial, numerous witnesses testified to the secret proxy plot. However, Phillips offered a bold defense. Instead of denying the proxy plot, his lawyers admitted it—and argued that it was “a common practice” among railroads.⁸⁶ Phillips was found guilty of illegally soliciting proxies and faced possible removal from the Fitchburg’s presidency. Instead, the judge deferred his sentence and, in the spring of 1889, the Massachusetts legislature repealed the law that he had been convicted of violating.⁸⁷ After the repeal, the judge dismissed the petition against Phillips, and he suffered no consequences.⁸⁸ The Fitchburg story highlights the significant political power wielded by the state’s large railroad corporations, which they used to legalize voting practices that, just a few decades earlier, had been considered serious infringements on corporate governance.

Pennsylvania’s 1820 law required a person voting another shareholder’s proxy to swear an oath, under penalty of perjury, confirming that he or she had complied with all applicable proxy rules. This created the possibility of criminal liability for proxy violations at private companies, a trend that took hold in other states.⁸⁹ Over the years, several states would authorize criminal punishments for proxy voting violations, even including imprisonment. New York authorized imprisonment for violations of its proxy law for railroad corporations in an 1880 statute; proxyholders could be prosecuted for perjury for giving false oaths, and substantive violations of the proxy law were misdemeanors.⁹⁰ New Hampshire’s 1891 general corporation law went further, authorizing imprisonment and fines, for, among other things, “fraudulently procur[ing] or receiv[ing] the transfer of a share for the purpose of voting thereon,” or “directly or indirectly solicit[ing] a proxy for any other person to vote upon.”⁹¹

E. The Purchase and Sale of Proxies

In the Galena & Chicago Union proxy abuse scandal, described above, proxyholders were reported to have gained control of the railroad by purchasing proxies from New York brokers. This hinted at a wider set of practices that plagued the proxy system.

In the late nineteenth century, many American railroad corporations were financed overseas by investors from Europe.⁹² The logistics of overseas finance encouraged brokers to keep stock registered in the brokers’ own names. For example, when a Wall Street broker purchased stock in an American corporation for sale in Europe, the broker would have the stock transferred into its own name, in case the stock certificates were lost “by an accident to the steamer, miscarriage or robbery of the mails.”⁹³ It was simply easier to have the certificates re-issued if they were registered in the broker’s own name. In addition, because of the snail’s pace of international travel, changes in overseas stock ownership could take “intervals of several months” before stock lists would accurately record the owner of the shares, which presented problems if the new stockholders wanted to vote or receive their dividends.⁹⁴ A broker could collect the dividend and credit it to the client’s account.

All of this tended to encourage practices in which Wall Street brokers held large amounts of clients’ stock in their own name, giving them voting rights in corporations in which they lacked a financial interest. Brokers quickly learned they could monetize this practice by selling proxies for their clients’ stock. In 1878, New York’s Hepburn Committee, formed to investigate abuses by the management of railroad companies, uncovered evidence of proxy abuse, including the purchase and sale of proxies.⁹⁵ A corporate lawyer testified under oath that he had personally purchased proxies from brokers for an election of the Cleveland, Columbus, Cincinnati & Indianapolis Railroad Company.⁹⁶ The practice was not illegal at the time, though the president of the Erie Railroad testified that he found the sale of proxies “extremely objectionable.”⁹⁷ New York’s legislature prohibited the sale of proxies in railroad corporations two years later, in 1880, and, in 1890, at all corporations.⁹⁸

Even where brokers were not selling proxies, they were voting their clients’ stock. A banker for Kuhn, Loeb & Company, admitted to the Hepburn Committee that his brokerage house had voted 56,000 shares of its clients’ stock, which stood in the firm’s name, in the 1877 directors’ election of the Erie Railroad.⁹⁹ The 1880 railroad proxy law included language designed to outlaw this practice as well, but the practice endured.¹⁰⁰ The New York Stock Exchange (“NYSE”) finally stepped in in 1937—nearly sixty years later—to regulate brokers’ voting of client stock, enacting the “ten-day rule.”¹⁰¹

Another way that proxies were monetized was through the “hypothecation” of stock. The president of the Erie Railroad told the Hepburn Committee that it had become common for stock held as collateral to be “transferred upon the books [of the corporation] into the name of the party holding it as security,” giving the creditor the right to vote the stock; the creditor would then sell a proxy for the stock for “a payment of $2 a share, or $1 a share, or $5 a share, according to the emergency of the case.”¹⁰² The shares would be transferred back into the name of the debtor once the debt was paid, per the agreement formed between creditor and debtor. The Erie’s president objected to this transfer of voting control, telling the committee that the practice “ought in some way to be regulated and controlled.”¹⁰³ Here, again, it appears that New York legislators struggled to draft statutory language that could effectively regulate the practice.

F. Proxy Voting as a Shareholder Right

In the last three decades of the century, nearly every state made delegated voting a right of shareholding. Massachusetts was among the states that did so, in an 1870 law (for manufacturing corporations).¹⁰⁴ However, by then it had already placed significant limitations on proxy voting, including a prohibition against proxy solicitation by corporate officers.¹⁰⁵ Massachusetts’s 1870 law left the gist of these proxy restrictions in place.¹⁰⁶ Five years later, in 1875, New Jersey’s legislature used nearly identical language in its own law to entitle stockholders to vote by proxy but omitted the limitations on proxy voting that Massachusetts had embraced.¹⁰⁷ In 1883, when Delaware substantially revised its corporate law, it adopted the language from the New Jersey statute nearly word-for-word, creating an entitlement to proxy voting with no limitations.¹⁰⁸ Thus, by the time of the 1888 Fitchburg Railroad Company election, Massachusetts’s continuing restrictions on proxy voting made it an outlier among Eastern states. This may help explain why Phillips defended himself by claiming that allrailroad managers used the proxy system to control electoral outcomes—and why Massachusetts’s legislature changed its laws when they were challenged.

By 1900, only one or two states still had laws in force that restricted who could vote by proxy, and who could exercise proxy votes. Indeed, the story of how the prosecution of the president of the Fitchburg Railroad for illegally soliciting proxies resulted in the repeal of all of Massachusetts’s proxy-voting restrictions, despite the president’s admitted guilt and the railroad’s poor financial condition, evidences the significant power that corporate managers wielded at the end of the century to end proxy voting restrictions. The widespread (and permanent) elimination of proxy voting restrictions at the end of the century made possible a growing “separation of ownership and control,” as corporate managers became increasingly adept at harvesting and voting shareholders’ proxies.

Only a handful of U.S. states did not place meaningful restrictions on proxy voting at some point in the nineteenth century. Coincidentally, those same states—New Jersey, Delaware, and New York—would play key roles in the “race to the bottom” in the 1880s, 1890s, and early 1900s. Though the conventional story of the “race to the bottom” has ignored proxy voting restrictions, it hardly seems plausible that corporate promoters were not paying close attention to such laws when they sought jurisdictions in which to incorporate large, new companies that would be financed through the sale of stock to the public. What is likely, instead, is that promoters and managers did not publicize their interest in shopping for state laws that gave managers the greatest ability to solicit, aggregate, and vote holders’ proxies, because doing so might have revived public outrage about proxy abuse. Though financial writers continued to wring their hands about proxy abuse in the twentieth century, these concerns did not lead to legislative action until the New Deal.

* * *

By the end of the nineteenth century, proxy voting had become a right of shareholding in virtually every state; a corporation could set ground rules for proxy voting but could not prevent shareholders from delegating their votes. Not only had categorical exceptions been swept away, but courts in several states had started invalidating corporations’ proxy regulations on the ground that they “restricted [the shareholder’s] liberty of choice of the person authorized to vote under his proxy.”¹⁰⁹ In 1888, a New York court threw out a manufacturing company’s bylaw on that basis; it had required a proxyholder to be a shareholder of the company.¹¹⁰ California’s highest court reached a similar decision in 1894 for a bank corporation, asserting that such a bylaw constrained a California stockholder’s “substantial right” to vote by proxy in corporate elections, which was guaranteed by state statutory law.¹¹¹ Though presented as a win for shareholders, of course, this new “liberty” was, in practice, an advantage for corporate managers. It foreclosed shareholders’ ability to contract for proxy voting rules in the charter or bylaws that would have aligned proxyholders’ voting interests with their financial interests, and it allowed virtually anyone to solicit, aggregate, and vote proxies in a corporation in which they held no interest. Some corporations even prevented their own stockholding workers from attending shareholders’ meetings, citing the workers’ power to delegate their votes.

II. PER-SHARE VOTE ALLOCATIONS

Part I showed how the rise of a proxy system of delegated voting shaped shareholders’ voting rights and created opportunities for proxy abuse, leading to a proliferation of state statutes designed to regulate proxy voting and to curb abuses. In spite of tightening laws, proxy abuse quickly became a means for sophisticated actors to control corporate elections, causing harm to shareholders, arousing public anger, and prompting round after round of legal reform.

This Part shifts focus to a separate but contemporaneous change to shareholders’ voting rights: the elimination of restricted voting and the rise of one-share-one-vote in its place. The historical literature has documented how, over the nineteenth century, corporate law evolved significantly with regard to per-share vote allocations. Though the century began with a mix of approaches in use, many of which reduced the voting power of large shareholders, it ended with most states mandating one-share-one-vote, or “plutocratic” voting.¹¹² One-share-one-vote would go on to define twentieth-century voting rights until, very recently, dual-class structures emerged to reintroduce differences in stock voting strength.¹¹³

An enduring puzzle, however, is why state corporate laws moved away from restricted voting in favor of mandatory one-share-one-vote during the nineteenth century.¹¹⁴ The literature has advanced three theories of the purpose of restricted voting: a democracy theory, an investor-protection theory, and a consumer-protection theory.¹¹⁵ Each of these theories implies a different reason for the shift away from restricted voting to one-share-one-vote.

This Part posits that the interplay between proxy voting practices and restricted voting schemes, particularly at widely held firms, heightened problems associated with the emerging proxy system. At widely held corporations, restricted voting schemes made it easier for managers to solicit and aggregate proxies from small holders to control corporate elections. Shareholders who held large blocks of stock might have acted to defeat proxy abuse—and had strong incentives to oppose managerial self-dealing—but they were hobbled by limits on their voting power. In addition, proxy voting could be used to defeat restricted voting: wealthy shareholders could “parcel out” their holdings to affiliates, then obtain and vote proxies for those shares. By breaking up large blocks of stock subject to voting restrictions, wealthy shareholders could increase the voting power of their shares—and unless they were subject to proxy voting restrictions, they could exercise those votes as proxyholders. The expanding use of proxy voting, combined with restricted voting, disempowered large shareholders who acted in good faith (and complied with vote restrictions)—those who might have played a useful stewardship role—but probably did not prevent less scrupulous actors from turning a corporate election to their advantage.

Evidence suggests that some states initially may have responded to rising proxy abuse by experimenting with tighter voting restrictions. When that failed to produce results, legislatures may have become more open to one-share-one-vote as a countervailing strategy—and investors themselves may have demanded it. At the same time, the nationwide trend in favor of cumulative voting, starting in the 1870s, may have encouraged adopting states that had not already done so to mandate one-share-one-vote for all types of corporations.

A. Restricted Voting in Corporate Elections

Though one-share-one-vote is the norm today in American corporate governance, this was not true in the early 1800s. Instead, at that time, a mix of approaches was in use. Some corporations used one-person-one-vote, while others employed graduated voting or voting caps (or both).¹¹⁶ These strategies, which limited the voting strength of large shareholders, constituted restricted voting.¹¹⁷ One-person-one-vote, sometimes described today as “democratic” voting, gave all shareholders equal rights in the management of the corporation, from the holder of a single share to the wealthiest investor.¹¹⁸ For example, when the Wilmington Spring Water Company was incorporated in Delaware in 1804, its legislative charter specified that “no stock-holder shall be entitled to more than one vote.”¹¹⁹

In graduated voting, smaller shareholdings had greater voting power per share, with diminished votes allocated to additional shares.¹²⁰ Graduated voting schemes could have two, three, four, or more tiers of voting strength.¹²¹ As discussed in more detail below, in 1837, Virginia’s legislature created a four-tiered graduated voting scheme for bank corporations. The law gave one vote per share up to ten shares; one vote per five shares, from eleven to one hundred shares; one vote per ten shares, from one hundred one to three hundred shares; and one vote for every twenty-five shares above three hundred shares.¹²² Some corporations used more elaborate sliding-scale approaches, but, whatever the specifics, the effect of graduated voting was to limit the voting power of large block-holders in relation to small holders.¹²³ In fact, the leveling effect was greatest at companies that had a few large holders and many small holders.

Voting caps placed an upper limit on the total number of votes a holder could cast in an election. Some caps set a vote limit,¹²⁴ while others prohibited a holder from exercising more than a certain percentage of the corporation’s total votes. For example, in 1849, Pennsylvania’s legislature enacted a general incorporation act for manufacturing corporations that gave all shareholders one vote per share up to one-third of the total votes.¹²⁵ Other states imposed more restrictive caps. New Hampshire’s 1891 general corporate law statute capped a shareholder’s total votes at one-eighth of the stock.¹²⁶ Massachusetts’s second general incorporation statute for railroads, enacted in 1874, capped shareholders at one-tenth of total shares.¹²⁷ Some states employed graduated voting schemes and voting caps together, the most restrictive approach available.

Restricted voting introduced a confounding problem to corporate governance: unless the entire share distribution of the corporation was analyzed, the relative percentage of votes exercisable by any one shareholder was unknown.¹²⁸ Thus, a shareholder who held twenty-five percent of a corporation’s shares could not necessarily exercise twenty-five percent of votes; that shareholder’s percentage voting power depended on whether (and to what degree) the votes associated with all of the corporation’s other shares were restricted.¹²⁹ In practical terms, restricted voting made it difficult for a party plotting to accumulate proxies to know how many votes were needed to win an election—at least without analyzing the full list of stockholders. This fact helped give the corporation’s managers the upper hand in soliciting proxies. Managers had untrammeled access to the most current list of stockholders, and thus a head start in determining how many votes could be exercised at an upcoming meeting, how many votes constituted a majority, and which shareholders enjoyed the greatest voting power—and therefore should be targeted for a proxy solicitation.¹³⁰ In this way, restricted voting and proxy voting could intersect to give managers, even those owning little stock, a control advantage in the emerging proxy system.

Over the decades, nearly all states moved from mandating restricted voting for at least some kinds of corporations, to mandating one-share-one-vote for all corporations.¹³¹ In a sample of New York corporations incorporated between 1790 and 1825, Eric Hilt found that roughly the same proportion of companies used one-share-one-vote (48%) as used graduated voting and one-person-one-vote schemes combined (47%).¹³² Colleen Dunlavy’s study of special legislative charters from 1825 to 1835 found that 27% used graduated voting.¹³³ Though empirical research on corporate voting rights in this period has produced some conflicting results, all scholars generally agree that graduated voting was in wide use in the early decades of the nineteenth century.¹³⁴

B. Three Theories

Why did states employ restricted voting in corporate elections? The literature has offered three theories about the purpose of restricted voting in early-nineteenth-century corporations. One theory emphasizes political and social factors; the other two focus on economic considerations. Scholars who have contributed to this literature concede that none of the three theories is a perfect fit with the evidence from this period and that empirical studies have produced “contradictory findings.”¹³⁵ The theories are not even necessarily mutually exclusive.¹³⁶ It is possible that restricted voting served a combination of political, social, and economic objectives.

Dunlavy has argued that restricted voting is explained by Americans’ political conception of the business corporation and their post-Revolutionary commitment to democratic governance, which they transmitted to the corporation.¹³⁷ According to this theory, early corporate norms “tended to treat shareholders more like citizens in a relatively egalitarian polity,” following a democratic model.¹³⁸ Advocates of this democracy theory argue that restricted voting suppressed the power that large shareholders exercised in the corporation not only to reduce power inequities among shareholders but also with an eye to the corporation’s growing importance in the community and the economy. The democracy theory suggests that the shift to one-share-one-vote reflected changing political and social conceptions of the corporation and its role in society.

Though Dunlavy makes a persuasive case that early Americans viewed corporate organization through a political lens—and that, following the American Revolution, zeal for democracy was strong—nineteenth-century corporate governance diverged from political governance in some significant ways. The use of different restricted voting schemes for different industries suggests that Americans were not pressing for the same level of democratic voting at all types of corporations.¹³⁹ Importantly, delegated voting was not a democratic norm; proxy voting was rejected for political elections across the United States. Thus, the popularization of proxy voting in corporate elections distinguished corporate governance from democratic political governance, again suggesting that lawmakers and corporate promoters perceived differences between the two. If democratic values shaped early thinking about corporate governance, they appear to have had less salience by the middle of the nineteenth century, when a writer could comfortably assert in the New York Times that “[t]he theory of all corporate bodies is that every member of them should have a vote and an influence equal to his interest.”¹⁴⁰

A second group of scholars, writing mainly from the law-and-economics perspective, contends that restricted voting schemes served an investor-protection purpose by helping small shareholders protect themselves from self-dealing by large holders.¹⁴¹ Because early nineteenth century corporate law offered few shareholder protections, such as informational rights, voting rights may have been particularly important to investors; Eric Hilt has posited that “graduated voting rights were chosen at least in part in order to attract small investors by limiting the voting power of large shareholders.”¹⁴² Hilt’s study of New York corporations chartered through 1825 found that corporations in industries with the greatest ownership concentration were associated with more-restricted voting rules, evidencing a relationship that would support his theory.¹⁴³

The democratic and investor-protection theories offer similar explanations for the purpose of restricted voting. Writings from the middle of the century connected restricted voting to intra-corporate power without specifying whether the power in question was managerial or financial. In 1850, for example, a banker wrote that restricted voting had been employed in New York to “guard against the dangers” posed by a controlling shareholder.¹⁴⁴ A railroad stockholder, writing a few years later, explained that “limit[ing] the number of votes of large stockholders” through graduated voting was “not unusual” and was done “in order to prevent too much concentration of power.”¹⁴⁵ Was the problematic concentration of power strictly a financial problem for investors, or was it also a problem of managerial dominance and political might? Nineteenth-century Americans probably perceived these concerns as overlapping, making it plausible that restricted voting served both political and investor-protection objectives.

The democratic and investor-protection theories imply different reasons for the shift to one-share-one-vote, however. Dunlavy suggests that changing political conceptions of the corporation contributed to the shift to one-share-one-vote. In contrast, the investor-protection theory implies that the need for restricted voting diminished as new investor protections were created. Though investor protections did eventually strengthen in the United States, particularly in the early twentieth century, this timing post-dates the popularization of one-share-one-vote. Research has not yet confirmed that one-share-one-vote grew alongside investor protections during the early or mid-nineteenth century.

Neither the democracy theory nor the investor-protection theory accounts for all of the ways in which nineteenth-century Americans perceived that shareholder voting intersected with corporate power. For example, in 1871, the managers of the Missouri Pacific Railroad pressed the state’s legislature to enact a proposed law authorizing railroad corporations to switch from restricted voting to one-share-one-vote. The editors of the Missouri Republican supported the new law, which allowed a railroad company to eliminate restricted voting upon a shareholder vote.¹⁴⁶ The editors wrote that the original voting scheme for the Pacific Railroad had used graduated voting because “there was fear of the road becoming a political machine in the hands of the city and county of St. Louis,” which once had owned large blocks of stock.¹⁴⁷ After that stock had moved into private hands, the editors reasoned, it “seem[ed] but just” to change the vote allocation.¹⁴⁸ The law was passed.¹⁴⁹ The episode revealed the complexity of considerations that influenced voting-rights schemes at some companies.

Finally, a pair of scholars has advanced a consumer-protection theory.¹⁵⁰ Henry Hansmann and Mariana Pargendler point out that many shareholders of early American corporations were also consumers of the corporations’ products and services.¹⁵¹ They posit that restricted voting empowered consumer-shareholders to use their franchise to prevent large shareholders from raising prices or harming them as consumers.¹⁵² According to these scholars, the consumer-protection theory explains the relative incidence of restricted voting across industries,¹⁵³ particularly what they claim was an earlier shift to one-share-one-vote among manufacturing corporations, as compared to transportation companies.¹⁵⁴ Research for this Article did not find support for such a comparative shift or bright-line distinction across industries, however, as discussed below.¹⁵⁵ The consumer-protection theory suggests that vote allocations changed after “superior substitutes” to restricted voting were developed for the purpose of protecting consumers.¹⁵⁶

All three of these theories were developed in part in reliance on studies of corporate charters from the earliest decades of the nineteenth century.¹⁵⁷ This research has yielded important insights but must be viewed with caution.¹⁵⁸ Study samples have been limited to a small subset of states, like New York, to the exclusion of other states.¹⁵⁹ They have mostly included very early corporations; the most rigorous body of work analyzing voting allocations in corporate charters was limited to the period from 1790 to 1826.¹⁶⁰ Hansmann and Pargendler’s study included legislative charters enacted as late as 1859 but excluded charters obtained under general incorporation statutes, which were common by the 1850s.¹⁶¹ Because the shift to mandatory one-share-one-vote occurred in nearly all states after the Civil War, charter studies have provided, at best, an incomplete picture of changing corporate governance laws and practices.¹⁶²

C. One-Share-One-Vote and General Incorporation Laws

The literature associates the move to one-share-one-vote with the rise of general incorporation statutes in the United States.¹⁶³ This association is explained by researchers’ emphasis on the state of New York, which enacted one of the first general incorporation statutes, for manufacturing corporations, in 1811.¹⁶⁴ New York’s 1811 law mandated one-share-one-vote, a fact that may have led scholars to associate the shift to one-share-one-vote with the rise of general incorporation laws.¹⁶⁵

If we consider states outside New York, a different picture emerges. Ohio enacted a general incorporation law for manufacturing corporations in 1812 that mandated graduated voting.¹⁶⁶ New Jersey’s legislature experimented with one-share-one-vote for manufacturing corporations from 1816¹⁶⁷ to 1819,¹⁶⁸ then repealed one-share-one-vote and allowed corporate promoters to choose a voting rule for themselves.¹⁶⁹ Evidence from Virginia likewise suggests resistance to one-share-one-vote for manufacturing corporations. In 1833, Virginia’s House of Delegates rejected a one-share-one-vote provision in a proposed charter for the Sidney Manufacturing Company, replacing it with a deeply-graduated voting scheme.¹⁷⁰ The four other manufacturing corporations chartered during the same legislative session used graduated or capped voting, suggesting that Virginia’s General Assembly was consistent in requiring restricted voting for manufacturing corporations at this time, even when corporate promoters sought a rule of one-share-one-vote.¹⁷¹ Virginia’s 1837 corporate laws, described in the next section, required graduated voting for manufacturing corporations in the state. Even after the mid-century, West Virginia enacted a general incorporation law that mandated graduated voting for manufacturing firms.¹⁷² Thus, while one-share-one-vote was found with increasing frequency in general incorporation statutes as the nineteenth century wore on, it was not the case that general incorporation statutes ushered in a rule of one-share-one-vote.

D. Virginia’s 1837 Voting-Rights Scheme

Virginia’s legislature responded to surging demand for corporate charters in the 1836–1837 economic boom¹⁷³ by enacting three new sets of corporate laws.¹⁷⁴ These laws regulated vote allocations by industry, mandating graduated voting for (1) bank corporations, (2) railroad corporations, and (3) manufacturing and mining corporations.¹⁷⁵ The statutes were not general incorporation laws, but rather broad “regulatory” statutes that were designed to streamline the special legislative charter process.¹⁷⁶ Because all three laws were enacted by the same legislature during the same year, it seems likely that the use of different vote-allocation schemes was purposeful.¹⁷⁷ Virginia’s legislature assigned the most graduated voting scheme to banks;¹⁷⁸ the bank statute recognized four voting tiers, from one-share-one-vote for small holders (up to ten shares) to twenty-five-shares-one-vote (above three hundred shares).¹⁷⁹ It assigned three tiers of graduated voting to manufacturing and mining corporations¹⁸⁰ and two tiers of graduated voting to railroad corporations.¹⁸¹ However, the railroad voting scheme was still considerably more restrictive for large holders than a two-tiered scheme enacted for turnpike corporations in 1817, which was still in force.¹⁸²

Why did Virginia’s legislature create the most deeply graduated voting scheme for banks? Researchers have found that banks in jurisdictions mandating one-share-one-vote at this time had fewer shareholders, and greater concentration of ownership, than banks operating in jurisdictions with restricted voting.¹⁸³ Thus, one possibility is that legislators believed that enacting a deeply-graduated vote allocation scheme would encourage more Virginians to invest in banks. Legislators may have believed that benefits would accrue to the Virginians who decided to invest, creating widely-shared prosperity, or to the financial system itself, in the form of reduced risk.

Virginia’s 1817 law for turnpike corporations had imposed a less-restrictive voting-rights scheme than any of the 1837 laws. Why would statutes enacted in 1837, twenty years after Virginia’s first turnpike general incorporation laws, impose greaterrestrictions on the voting power of large shareholders than the turnpike law did? (Recall that, under the consumer-protection theory, the voting power of large shareholdings should have been more restricted for turnpike companies than for manufacturing companies, because the former had many consumer-shareholders seeking to keep prices low, while the latter did not.)

Virginia’s legislature may have been more concerned about proxy abuse and electoral fraud in 1837 than it had been in 1817. As we have already seen, in New Jersey, fraudulent corporate elections had become a significant problem by 1825¹⁸⁴ and apparently did not improve after a first round of legislation, resulting in additional legislative action in 1841.¹⁸⁵ In New York, important legislation regulating corporate elections was enacted in 1825¹⁸⁶ and, for “monied corporations,” in 1827.¹⁸⁷ And evidence from Pennsylvania¹⁸⁸ and Massachusetts¹⁸⁹ suggests that serious proxy abuse had emerged at banks in those states by 1840. Problems associated with corporate elections were on the rise during the 1820s and 1830s, a fact that may have prompted Virginia’s General Assembly to experiment with strong new restrictions on the voting power of large shareholders. Indeed, evidence suggests that the use of restricted voting increased in legislative charters from the early 1800s to the 1850s.¹⁹⁰

E. One-Share-One-Vote as a Protection Against Proxy Abuse

If state legislatures believed that tightening limits on the voting power of large shareholders at banks and railroads would curb proxy abuse, however, they were disappointed. Though restricted voting evened the playing field between wealthy elite shareholders and small shareholders, it provided a uniquely potent opening for unscrupulous managers skilled in proxy manipulation. Ambitious actors could solicit proxies from a company’s many absent, small holders to defeat the restricted votes of larger holders.

As we have seen, by the 1840s and 1850s, lawmakers and commentators were complaining of scenarios in which sophisticated corporate managers, owning little stock themselves, had developed strategies to solicit and vote small shareholders’ proxies, establishing de facto control.¹⁹¹ The most aggrieved group in such a scenario—wealthy elites with large ownership interests in a corporation—likely recognized that they would be in a better position to exercise countervailing power in firms if the full voting power of their investments was recognized. Thus, pressure to move to one-share-one-vote may have come from business and political leaders seeking to put an end to proxy abuse.

In addition, proxy voting could be used to defeat restricted voting: wealthy shareholders could “parcel out” their holdings to affiliates, then obtain and vote proxies for those shares. Virginia’s 1837 bank law (but not its laws enacted the same year for railroads and manufacturing and mining companies) prohibited efforts to “evade” graduated voting or to give any party “a greater number of votes than he [was] fairly entitled to under” the act.¹⁹² This suggests a general awareness, by the late 1830s, that large shareholders at banks sometimes took steps to defeat restricted voting. As early as 1818, shareholders of the Bank of the United States had engaged in tactics to evade that bank’s deeply restricted voting scheme.¹⁹³ Though the Bank’s charter capped shareholders at thirty votes, one writer alleged that the Bank’s “southern stockholders” had achieved one vote per share by transferring shares to friends and obtaining proxies for the shares.¹⁹⁴

In later decades, the same tactics would be observed in the railroad industry. The Atlantic & North Carolina Rail Road Company sharply curtailed the voting rights of large shareholders using a graduated voting scheme that was still in place as late as 1921.¹⁹⁵ In the 1870s, however, some large shareholders defeated the restrictions by “parceling out” their stock “by assignment, by gift, and otherwise,” then turned around and obtained proxies for those shares.¹⁹⁶ In 1877, a judge had to step in and enjoin the practice.¹⁹⁷ The persistence of such tactics, across industries, suggests that restricted voting did not always even the playing field between large and small shareholders and that it may have encouraged wealthy actors to defy corporate governance laws.¹⁹⁸

Hilt’s study of early-nineteenth-century New York corporations found a positive association between one-share-one-vote and managerial ownership.¹⁹⁹ Corporations whose directors owned significant stock had higher values on Hilt’s voting rights index, meaning that they were closer to one-share-one-vote. This is consistent with the thesis that one-share-one-vote discouraged proxy abuse. If a corporation’s officers and directors were also its largest shareholders, they did not need to engage in proxy abuse to obtain control. They could exercise control by voting their shares and would likely have preferred a rule of one-share-one-vote. On the other hand, if a corporation’s directors did not own much stock, they could exercise control only through proxy solicitation, and they probably would have preferred restricted voting. Thus, we would expect to find—as Hilt did—that corporations run by managers who owned little stock were more likely to use restricted voting.

The cumulative voting trend, which swept the United States after Illinois first adopted cumulative voting in its 1870 constitution, also pushed states toward one-share-one-vote. This is described in greater detail in Part III.

F. Shareholder Voting Beyond Director Elections

In state laws, corporate charters, and common practice, restricted voting applied to director elections, but not to other matters put to a vote. Shareholders voted on a range of matters and, outside of director elections, a strong default existed in favor of per capita voting.²⁰⁰

[i]f a charter described a voting rule as applying specifically to elections, then all other decisions (e.g., regarding strategy) were to be made according to the common law—one vote per person. . . . [but b]y the turn of the century, charter provisions regarding voting in elections were viewed as applying to all decisions of shareholders.

Id. When shareholders cast votes to decide other matters, “they did so democratically: each shareholder, large and small alike, cast only one vote.”²⁰¹ As a result, it was common for stockholders’ meetings to employ a mix of voting rules: the “stock vote” for director elections and a show of hands, or voting viva voce, for other matters.²⁰²

A Philadelphia lawyer described the default in 1884 as “the majority in number rules at corporation meetings,” unless a special provision of law could be shown that required a stock vote.²⁰³ “[T]he stock vote is never demandable,” he explained, adding that “the charter and by-laws must in each case be examined” to determine which corporate issues had to be determined by a stock vote.²⁰⁴ Large, publicly-held companies in the United States were still reporting voting results on a per capita basis, in addition to a share basis, as late as the 1950s, purely by custom.²⁰⁵ Corporate managers and shareholders alike derived meaning from the per-capita data, which provided a snapshot of shareholder voting from the democratic perspective.

G. The Disappearance of Restricted Voting

The rise of one-share-one-vote advanced “very unevenly” and restricted voting remained common up to and after the Civil War.²⁰⁶ Hansmann and Pargendler found that 42.6% of special legislative charters (across all industries) that were enacted in the 1850s and specified a voting rule employed restricted voting.²⁰⁷ Sixty-eight percent of special legislative charters analyzed by Dunlavy for 1855 used either one-person-one-vote or restricted voting.²⁰⁸ New York used general incorporation statutes to gradually mandate one-share-one-vote.²⁰⁹ However, in 1887, New York’s legislature tried to reverse course, passing a bill that would have allowed corporations to authorize per capita voting in the charter.²¹⁰ New York’s governor did not sign the bill, and it did not become law.²¹¹ New Jersey eventually also moved to one-share-one-vote.²¹² Delaware’s first two general incorporation acts for manufacturing corporations (1875 and 1883) made one-share-one-vote the default, but the state did not mandate one-share-one-vote until 1899.²¹³ For reasons that are unclear, Delaware’s General Assembly changed its law again only two years later to make one-share-one-vote a default rule, rather than a mandatory one, and this remains the rule there today.²¹⁴

In the last three decades of the nineteenth century, vote allocations shifted decisively in favor of one-share-one-vote. Some state legislatures took action to allow existing corporations to change their graduated vote allocations to one-share-one-vote with shareholder approval.²¹⁵ In New Jersey, caselaw at the end of the century suggested that one-share-one-vote might be enforced retroactively against corporations that had been chartered with graduated voting years earlier as a matter of law.²¹⁶

Why did restricted voting disappear from American corporate governance? Hilt noted some of its costs, including “cumbersome and uncertain director elections,” and impacts on the market for corporate control, as well as the fact that shareholders circumvented restricted voting rules.²¹⁷ This Article adds to the possibilities. Restricted voting worsened problems associated with the emerging proxy system; one-share-one-vote provided a means for large shareholders to push back. At a minimum, one-share-one-vote increased the odds that the individuals controlling the company owned significant stock in it. And, as outlined in Part III, the cumulative voting trend, which began in the 1870s to empower minority shareholders in relation to large holders, also pushed corporate governance toward one-share-one-vote.²¹⁸

The solution to the problem of proxy abuse eluded American lawmakers. Corporations in a nationalizing economy needed to raise large amounts of capital, which they did by selling stock to many investors who lived far from the location of the annual shareholders’ meeting. Lawmakers probably did not want to eliminate proxy voting altogether, which risked choking off an important source of corporate finance. On the other hand, state laws designed to regulate proxy voting did not end proxy abuse. At the middle of the century, one writer suggested that states had abandoned restricted voting “from an opinion that every guard can be easily evaded, and that stockholders had better be presented with a known evil, than deluded with a fallacious remedy.”²¹⁹

* * *

Restricted voting faded away in the second half of the nineteenth century.²²⁰ Dunlavy placed the shift “from democratic to plutocratic voting rights” in the period that followed the Civil War—the decade or so that also witnessed the invention of cumulative voting.²²¹ By the end of the nineteenth century, most states required one-share-one-vote for newly chartered corporations.²²² However, many corporations that had been chartered decades earlier, under different legal regimes, continued to employ graduated or capped voting into the twentieth century. Thus, vestiges of restricted voting likely influenced shareholders’ rights and corporate control as late as the 1920s or beyond.

III. THE SHAREHOLDER’S RIGHT TO CUMULATE VOTES

Part I described the evolution of the shareholder’s right to vote by proxy and the development of the American proxy system. Part II connected that development to legal changes regarding per-share vote allocations. Together, these parallel tracks of change produced a system in which shareholders were entitled to delegate their votes, and voting power grew in direct proportion to investment. Proxy voting and one-share-one-vote developed synergistically: the former opened a gap between ownership and control, creating opportunities for expropriation and self-dealing, while the latter partly rebalanced power by empowering large shareholders to stand up to grasping corporate “kings”—the managers who might otherwise solicit, aggregate, and vote proxies, wielding unaccountable power over commercial empires.²²³

This Part shifts focus to the third major dimension of shareholder voting power—one that did not take shape until the last decades of the nineteenth century. This was cumulative voting: the shareholder’s right to aggregate votes across open seats in a director election. The invention of cumulative voting—and its instant popularization across American states—responded to a shifting balance of intra-corporate power, which had emerged to favor corporate managers and large block-holders at the expense of small shareholders. Essentially, the shift to one-share-one-vote, which gained momentum after the Civil War, was disempowering small shareholders in relation to wealthy, large holders, upsetting the balance of power that had been struck, however temporarily, at the beginning of the century. One-share-one-vote reintroduced the problem that restricted voting had sought to solve—the large holdings of wealthy investors translated directly into outsized voting power, relegating small shareholders to the margin of corporate governance.

Cumulative voting arose as a right of shareholding, starting in the 1870s, in counterbalance to that trend. Sometimes called “minority representation” by contemporaneous writers, cumulative voting provided a means for small shareholders to pool their votes to gain representation on the board. By 1900, nearly half of states had created a right to cumulative voting in corporate elections, reflecting significant political support for minority representation in American corporate governance and evidencing the hydraulic nature of intra-corporate power dynamics.²²⁴ Yet, cumulative voting faced strong resistance from corporate managers and was largely defeated by obstructive tactics, litigation, and the rise of the classified board. In the 1920s, Harvard economist William Z. Ripley observed that cumulative voting had been “repeatedly attacked, whittled down, actively debated, over and over again” since the late nineteenth century.²²⁵

A significant literature has described the rise and fall of cumulative voting in American corporate governance.²²⁶ This Part summarizes that history, presents cumulative voting as one of the three dimensions of nineteenth-century shareholder voting rights, and shows how it related both to delegated corporate voting and to the shift to one-share-one-vote.

A. The Invention of Cumulative Voting

New York, a leading state in the trend to mandate one-share-one-vote, was the first state to consider cumulative voting. A delegate to the 1867 New York constitutional convention proposed corporate cumulative voting during a period of significant proxy abuse in the state.²²⁷ The proposal was voted down after a debate.²²⁸ New York would never mandate cumulative voting but did pass a statute allowing corporations to opt in to cumulative voting in 1892.²²⁹

Two years after New York’s failed attempt to introduce corporate cumulative voting, the Chicago Tribune advocated cumulative voting as a cure for “many of the evils, mismanagements, and corruption of our private corporations” in advance of Illinois’s upcoming constitutional convention.²³⁰ Cumulative voting was proposed at the Illinois constitutional convention for both political and corporate elections.²³¹ “Give all the share-holders the right to plump their votes,” the Tribune argued.²³² Illinois’s constitutional convention went on to adopt cumulative voting for corporate elections, making it the first state to do so.²³³ The convention delegate who proposed it, Joseph Medill, was an owner of the Chicago Tribune and would become, the following year, Chicago’s mayor. Medill championed John Stuart Mill’s ideas about minority representation in democracy, which Mill had published in an 1861 work, and he also connected cumulative voting directly to proxy abuse.²³⁴ In a speech at the convention, Medill said,

The men who get control of stock by proxies, which they coax or purchase on misrepresentation, elect the entire board and then do as they please. The remainder of the stockholders are in the dark. . . . This majority having obtained absolute control of the offices of the company proceed to plunder the stockholders by high salaries, multiplication of offices, speculating in its money and franchises, and abusing their trusts in every respect. That this practice is common, is notorious throughout the Union as well as within this State, and it is growing worse all the time. This provision will unquestionably afford every stockholder more power of self-protection than he now possesses.²³⁵

Medill’s words reveal how, at its origin, cumulative voting was presented as a solution to problems that arose from the proxy system—problems that appear to have hit a new high point by 1870.²³⁶

Cumulative voting did not, of course, take off in American political law.²³⁷ But it quickly soared to popularity in corporate law—and, in a number of states, was constitutionalized as a right. Illinois’s 1870 constitution stated that “every stockholder shall have the right to vote, in person or by proxy,” cumulatively, “and such directors or managers shall not be elected in any other manner.”²³⁸ Within ten years of Illinois’s invention of corporate cumulative voting, five states had added corporate cumulative voting to their constitutions;²³⁹ seven more added it to their state constitutions by the century’s end.²⁴⁰ Colorado, Michigan, and Ohio²⁴¹ made cumulative voting mandatory by statute rather than in their state constitutions over the same period.²⁴² Texas enacted a statute making cumulative voting mandatory for railroad corporations in 1876.²⁴³

Charles M. Williams reviewed the debates that led to the adoption of cumulative voting in states across the U.S. and identified the main arguments offered in its support.²⁴⁴ The most prominent of these was an informational argument. Advocates argued that cumulative voting would enhance the information flowing to minority shareholders about the corporation’s affairs. Proponents of cumulative voting also argued that it would give a voice to minority shareholders in decision making, extend ownership participation to the corporation akin to that found in the partnership, and contribute to the “public welfare.”²⁴⁵ When Pennsylvania’s Supreme Court was called to interpret the state’s new constitutional provision on cumulative voting in 1876, it wrote that the legislature’s intent “was to work a radical change in the method of conducting corporate elections.”²⁴⁶ Leading corporate law experts, such as William W. Cook, argued in favor of cumulative voting to strengthen shareholders’ power at the end of the century.²⁴⁷ In 1927, economist William Z. Ripley acknowledged its “validity for the purpose of tempering unduly autocratic management.”²⁴⁸

Of the nineteen states that adopted a right to cumulative voting in corporate elections between 1870–1900, several—including Pennsylvania and West Virginia—moved to mandatory one-share-one-vote and cumulative voting at the same moment.²⁴⁹ For example, prior to adopting cumulative voting, West Virginia had mandated graduated voting for most types of corporations.²⁵⁰ Under its first general incorporation statute, enacted in 1863, shareholders were entitled to one-vote-per-share up to one hundred shares, but only one vote for every four shares over one hundred shares.²⁵¹ When, nine years later, in 1872, West Virginia amended its constitution to create a right to cumulative voting, it simultaneously mandated one-vote-per-share and eliminated graduated voting.²⁵²

It made sense to do this. First, cumulative voting was presented as increasing the voice of minority shareholders in firms with concentrated ownership—a main purpose of restricted voting. Thus, some state legislatures may have understood cumulative voting as an alternative to restricted voting. In addition, cumulative voting added to the complexity of director elections but its procedures were streamlined by moving to one-share-one-vote. West Virginia’s provision gave shareholders the right to “give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal, or to distribute them on the same principle among as many candidates as he shall think fit.”²⁵³ The provision would have needed different, more complex wording if cumulative voting was to be paired with graduated voting. In other words, cumulative voting may have seemed more workable if every share of stock was accorded the same voting power.

B. Cumulative Voting Meets Resistance

Corporate managers resisted cumulative voting in a national trend that underscored their fear about the potential for cumulative voting to shift power to minority shareholders. Corporations tried creative strategies, reflecting the growth, by that time, of a sophisticated bar of corporate lawyers. In 1885, the management of the Central California Water Company tried to defeat cumulative voting by electing directors one at a time, rather than together as a group; a California court rejected this as violating the state’s constitutional provision.²⁵⁴ By 1900, a case about Michigan’s cumulative voting statutes had reached the U.S. Supreme Court. In Looker v. Maynard, the Supreme Court held that Michigan’s 1885 cumulative voting statute made cumulative voting mandatory for an insurance company that had been incorporated in 1869 under a different version of the state’s corporate law.²⁵⁵

The robustness of the right conferred by cumulative voting laws turned, in part, on the size of the board itself and whether it was classified.²⁵⁶ As a result, state laws setting the size of the board and authorizing (and placing limits on) board classification shaped the rights that shareholders enjoyed in states where cumulative voting was mandatory. To the extent that a state’s constitution made cumulative voting an individual right, statutory laws about board size and classification operated to limit those rights and, eventually, were challenged in court as violating state constitutions.²⁵⁷ In the middle of the twentieth century, a shareholder of an Illinois corporation succeeded on a claim that a state law authorizing a staggered board conflicted with his state constitutional right to cumulative voting.²⁵⁸ This was followed by a second case, in Pennsylvania, in which several large corporations filed amicus briefs to preserve the use of classified boards.²⁵⁹ The Pennsylvania Supreme Court sided with the companies and held that classified boards were permissible despite the state-law right to cumulate votes.

Delaware, New York, and New Jersey—the three states that would dominate twentieth-century corporate law—declined to adopt mandatory cumulative voting. Instead, all three eventually allowed companies to opt in to cumulative voting. New York led the pack by enacting a statute in 1892 that permitted cumulative voting.²⁶⁰ New Jersey adopted the same approach in 1900,²⁶¹ and Delaware did so in 1917.²⁶² One study found that, by 1937, 45% of corporations registered with the SEC were incorporated in these “permissive” states.²⁶³ By 1956, the permissive states claimed a majority of companies listed on the NYSE.²⁶⁴

C. A Century of Relative Stability

The nineteenth century gave way to a new century in which shareholder voting rights stabilized. Twentieth-century corporate managers continued to enjoy significant advantages in proxy solicitation and voting, which they refined and enhanced. Starting in the New Deal, federal regulation of the proxy system gradually increased requirements for parties soliciting proxies to disclose accurate, material information to the shareholders whose delegated votes they sought. But it did not fundamentally change the proxy system or rebalance power within it. For the most part, the American proxy system continued to exist, largely in the form that it had achieved by the end of the nineteenth century, for another hundred years.

One-share-one-vote remained the dominant—even exclusive—approach to vote allocations in the United States until the very end of the twentieth century. In 1926, the NYSE expressly outlawed dual-class structures in corporations listed on its exchange; the prohibition endured until the 1990s when the major stock exchanges began allowing corporations to go public with dual-class structures.²⁶⁵

Cumulative voting, which had exploded in popularity at the end of the nineteenth century, had also been hobbled by countermeasures, such as the classified board, employed widely by corporate managers. Still, cumulative voting laws remained politically popular. Jeffrey Gordon noted a “high water mark” for mandatory cumulative voting laws in the late 1940s.²⁶⁶ Thereafter, corporate managers began a largely successful campaign to end cumulative voting rights.²⁶⁷

The seven states that adopted cumulative voting in this period all chose the permissive form. In the 1960s and early 1970s the trend was even more pronounced: states began switching wholesale from mandatory to permissive. The 1980s were a rout. Twelve states switched from mandatory to permissive. By 1992, only six states maintained mandatory cumulative voting; forty-four jurisdictions (including the District of Columbia) chose the permissive form; one state (Massachusetts) did not permit cumulative voting. No important corporate law jurisdiction maintained mandatory cumulative voting.

Id. at 145–46. The timing of those efforts coincided with a surge of shareholder activism seeking to strengthen cumulative voting—a central plank of the “corporate democracy” movement. Cumulative voting was also championed by shareholder activists who fought to add women to corporate boards, a campaign that gained significant public attention in the late 1940s and early 1950s.²⁶⁸ In 1943, the first woman shareholder to successfully present a shareholder proposal under the SEC’s new Shareholder Proposal Rule submitted a proposal that, among other things, demanded cumulative voting.²⁶⁹

Over the 1950s and subsequent decades, shareholder activists lost the company-by-company battle for cumulative voting, and it became increasingly uncommon. Today, only six states entitle shareholders to use cumulative voting in director elections, and cumulative voting is rarely utilized by shareholders.²⁷⁰ Unlike proxy voting, which empowered corporate managers, and one-share-one-vote, which empowered large shareholders, cumulative voting—which was designed from the start to empower small shareholders—never fulfilled its promise.²⁷¹

IV. EPILOGUE: A NEW ERA OF DYNAMIC CHANGE

After the turn of the twenty-first century, shareholder voting rights entered a new era of accelerating change. In 2008, Marcel Kahan and Edward Rock proclaimed that voting had never been more important in corporate law.²⁷² Yet, at that moment, corporate law was still years away from important upheavals in broker voting, pass-through voting, client-directed voting, and proxy voting mechanics. Delaware’s legislature authorized corporations to hold virtual-only shareholder meetings in 2000,²⁷³ but it wasn’t until the COVID-19 pandemic of 2020–2022 that tech-enabled, virtual meetings became dominant, accelerating the pace of technological advancement for shareholder voting.²⁷⁴

This Part summarizes evidence that the United States has entered a new era of change in shareholder voting rights, recalling the strenuous change that characterized the end of the nineteenth century, when accelerating forces pulled shareholder voting rights in competing directions. Current developments invite a comparison between shareholder voting rights in the Gilded Age of the late nineteenth-century and the so-called New Gilded Age of the twenty-first.²⁷⁵

The First Gilded Age was the era of industrial capitalism that began in the 1870s and 1880s and continued through the first years of the twentieth century, leading to the Progressive Era. . . . The Second Gilded Age begins, more or less, with the beginning of the digital revolution in the 1980s, but it really takes off in the early years of the commercial Internet in the 1990s, and it continues to the present day.

See also, Kent Greenfield, Reclaiming Corporate Law in a New Gilded Age, 2 Harv. L. & Pl’y Rev. 1, 3–4 (2008) (describing factors contributing to a new Gilded Age). During both periods, shifts in the balance of power among three core corporate constituencies—corporate managers, large shareholders (now asset managers), and small shareholders—put pressure on shareholder voting rights law. This building pressure coincided with major fault-line shifts in shareholder voting rights, as the “tectonic plates” of shareholder voting—proxy voting rights, vote allocations, and cumulative voting rights—moved in relation to each other. In the present moment, technology is transforming shareholder voting. Advancements in technology, especially those relating to the dissemination of information and voting mechanics, are making possible changes that could not have occurred in the nineteenth century.

A. The Re-Concentration of Voting Power in the Big Three

The re-concentration of shareholding into a very small set of private actors is the headline story of twenty-first-century corporate organization. It has reversed more than a century of increasingly dispersed shareholding—what once was called the “democratization” of shareholding²⁷⁶—by channeling voting power away from retail investors into institutional investors. At first, this power was exercised by a varied group that included mutual funds, pension funds, insurance companies, and banks, among others. More recently, that power has continued to re-concentrate into a very small set of actors, especially the “Big Three” asset managers: BlackRock, State Street, and Vanguard.²⁷⁷

Because the Big Three have the voting power to drive corporate policy, and have shown an increasing willingness to intervene in corporate policy, this re-concentration has upset the balance of power between shareholders and managers; corporate managers can no longer rest assured that they control voting outcomes through proxy voting. (Indeed, in a twist of irony, retail shareholders have emerged as a more consistent source of voting support of management than institutional investors.)²⁷⁸ The power of the Big Three is potentially kept in check only by state regulation and by their fiduciary obligations to beneficial holders. Corporate law and finance academics continue to assess this re-concentration, especially in light of the Big Three’s new willingness to exercise power and push for corporate reforms.²⁷⁹

B. A Countervailing Trend: Dual-Class Structures

Dual-class corporate structures allocate different levels of voting strength to different classes of stock. Dual-class structures began appearing in the 1980s, ending almost a century of adherence to the rule of one-share-one-vote.²⁸⁰ Google’s adoption of a dual-class structure in 2004 popularized the approach, and it has been used with increasing frequency in prominent Silicon Valley firms to cement insider control.²⁸¹ In 2021, twenty-three percent of all initial public offerings in the U.S. utilized a dual-class structure.²⁸² The swift rise of dual-class structures has attracted academic interest, producing a growing literature on the subject, especially since 2017.²⁸³

The modern trend does more than merely return shareholder voting to the nineteenth-century model, in which different shares of stock carry different vote allocations. It reverses the restricted voting paradigm of the nineteenth century. In the nineteenth century, restricted voting diminished the voting strength of shares held by large stockholders, creating what some commentators described as a more democratic (or equal) voting power between middle-income investors and wealthy elites. As we saw in Part I, however, restricted voting also functioned to empower corporate managers because it made it easier for them to seize control by proxy. Though the popularity of restricted voting early in the nineteenth century may have reflected a democratic impulse (this is up for debate), it did not produce more democratic governance of corporations.

Today, dual-class structures enhance the voting strength of elite shares—and, this time, those shares are most likely to be held by management itself, often a company founder.²⁸⁴ Commentators have argued that dual-class strategies are a direct response to the twenty-first-century empowerment of institutional investors.²⁸⁵ As institutional investors’ power has increased, corporate managers at some companies have responded by using per-share vote allocations to rebalance power in their favor.

Modern dual-class structures empower corporate managers by comparatively diminishing the voting rights of other shareholders. That dual-class structures are common in the tech industry, where behemoths like Alphabet and Facebook, or Meta, exercise near-sovereignty over key, communicative aspects of Americans’ lives, only underscores how this voting-rights reform reverberates across corporate policies. Although shareholder advocates largely oppose dual-class structures, there is no sign that dual-class structures are going away, or even that limits on dual-class structures (such as sunset provisions), which are popular with academics and practitioners, will be mandated by law. The struggle between concentrating shareholder voting power on one side (asset manager capitalism) and concentrating management voting power on the other (dual-class stock) has yet to play out.

C. Changes in Favor of Beneficial Holders

The re-concentration of ownership in asset managers has been met not only with push-back from corporate managers but also with new demands from small shareholders. As a result of decades of change that began around the middle of the twentieth century, Americans mostly hold public-company stock through intermediaries, such as funds and brokers.²⁸⁶ Though this
re-concentration has empowered asset managers, it also has sparked demands that asset managers provide greater transparency, accountability, and control over voting to beneficial holders—the clients for whose benefit the asset managers invest.²⁸⁷ Internet technology has played a key role by providing a means for investors to learn more about their funds’ voting practices.²⁸⁸

The first steps occurred in 2003. That year, new SEC rules went into effect requiring mutual funds to make public their policies on proxy voting and to disclose information about the votes they cast.²⁸⁹ These rules were designed to provide investors with tools to choose funds whose proxy voting aligned with investors’ own preferences. At the same time, the NYSE restricted uninstructed broker voting on executive compensation—the first of several moves to limit broker voting of client stock.²⁹⁰ In 2006, an NYSE working group recommended that brokers be prohibited from voting uninstructed stock in uncontested director elections.²⁹¹ This change did not go into effect until 2010.²⁹² Two years later, in 2012, the NYSE further expanded “Broker May Not Vote” matters to include proposals to declassify the board and to eliminate a supermajority voting requirement, among other matters.²⁹³

The crux of all these changes has been to make both funds and brokers accountable to their clients when they vote their clients’ stock—a relatively uncontroversial move that reduces agency costs while also protecting the interest of beneficial holders in determining how stock held for their benefit is voted. Yet the implication of these changes for the exercise of power in firms is substantial. These changes shift power from holders of record (asset managers and brokers) to beneficial holders, a group that includes public pension funds and retail shareholders. After many decades in which the voting power of intermediaries grew at the expense of small holders, these recent changes present a countervailing shift of power in favor of smaller holders.

D. Pass-Through & Client-Directed Voting

Another significant trend has been the rise of pass-through and “client-directed” voting strategies, especially through the use of new technologies. In 2021, one of the largest asset managers, BlackRock, announced new pass-through voting for index fund clients. Under this policy, the votes for about forty percent of indexed equities will be directed by clients of the asset manager.²⁹⁴ This change restores to pension funds, who invest in indexed products, something close to direct voting rights. It reflects both client demand for direct voting and a willingness of asset managers to relinquish voting power over shares under their control. Since it is adopted as a matter of practice, and is not required by law or regulation, the asset manager controls how voting control is allocated—for example, there is nothing stopping asset managers from allocating all of a fund’s votes based upon the preferences of a majority of clients.

Client-directed voting is a term coined in 2006 to describe advance voting instructions—a mechanism in which clients instruct the voting of their shares in advance, using specified criteria.²⁹⁵ This “set it and forget it” approach could vest significant power in the intermediary if the intermediary determines which advanced instructions its clients will choose among. Various market participants have endorsed the idea of client-directed voting, but the SEC has yet to enact rules that would make its implementation possible.

Both pass-through and client-directed voting respond to rising interest among investors, including retail shareholders, in direct-voting strategies.²⁹⁶ Put simply, investors want the benefits of index investing and brokerage accounts, combined with the benefits of voting choice.

E. The Universal Proxy

Even more recently, reform of the proxy system has occurred at the federal level. While the proxy system was relatively stable over the twentieth century, one problem remained constant: shareholders who signed away their votes did so using proxy cards that limited their choice of candidates.²⁹⁷ For all of the twentieth century, and almost a quarter of the twenty-first, shareholders generally could not vote by proxy without accepting limits on their freedom of choice.²⁹⁸

a shareholder who does not attend the stockholder meeting is unable to vote for some of management’s nominees and the nominees of the dissidents on the dissidents’ proxy. This is because, under corporate law, if a shareholder submits two different proxies the most recently executed proxy is counted on the theory it revokes the earlier proxy.

Id. In the 1990s, shareholders began withholding votes for candidates on the slate provided on the proxy form, to “express their lack of confidence in management’s performance.” See Joseph A. Grundfest, Just Vote No: A Minimalist Strategy for Dealing with Barbarians Inside the Gates, 45 Stan. L. Rev. 857, 865 (1993). This practice only underscored the shareholder’s lack of real choice when voting by proxy in a contested election.

Director elections held after August 31, 2022, are subject to new SEC rules that introduce the universal proxy.²⁹⁹ The universal proxy allows shareholders who vote by proxy to “mix and match” votes among candidates from different slates, the way that American voters can choose among candidates from different political parties in political elections.³⁰⁰ Though sometimes described as a “universal proxy ballot,” a universal proxy is not a ballot in the conventional sense.³⁰¹ A proxy card is a form delegating the shareholder’s vote—and a universal proxy simply offers the shareholder a greater range of choice for instructing the proxyholder about how to exercise the delegated vote. American shareholders may perceive the universal proxy as a ballot because it will resemble an absentee or mail-in ballot of the sort used in political elections. The universal proxy brings shareholder voting close to the political model. It may affect electoral outcomes, in particular by making it easier for dissident candidates (those not on the management slate) to get elected.³⁰²

* * *

The new developments described in this Part represent potentially significant changes to two of the three dimensions of shareholder voting rights explored in this Article (proxy voting and vote allocations). The history shows that the dimensions of nineteenth-century shareholder voting rights functioned interdependently; changes along one track influenced other, parallel tracks, in a process that shifted voting power back-and-forth among three core constituencies: corporate managers, small shareholders, and large shareholders. Though these tracks were governed by state law during the nineteenth century, they are significantly in the domain of federal law (or national stock exchanges) today.

With change occurring along three dimensions, shareholder voting rights in the nineteenth century were relatively fluid—and they proved difficult for legislatures to regulate effectively. The result was a long period of state-by-state experimentation, with significant variation. By the end of that century, however, state experimentation was coalescing into the now-familiar “race to the bottom.” Corporate managers had reshaped the law governing shareholder voting rights in ways that struck the balance of power in their own favor. This generated political resistance that would endure for decades. It set the stage for the tremendous industrial growth of the twentieth century, but it also assured that small shareholders would play little meaningful role in the governance of the companies in which they invested.

Several lessons emerge from this history. First, the primary conflict in corporate law is not binary but tripartite, among small shareholders, large shareholders (now asset managers), and corporate managers. Second, the wins and losses in this conflict can be difficult to discern except in hindsight. However, there can be little question that corporate power is distilled through changes to shareholder voting rights—and that changes in one area of shareholder voting increases or relieves pressure on other areas. Corporate power is hydraulic. Finally, when the dust settles, one set of actors may hold legal advantages that persist for decades. At the end of the nineteenth century, corporate managers emerged victorious and exercised de facto voting control over most big corporations for much of the twentieth century. Today, large asset managers are challenging corporate managers for power, with technologically-enabled small shareholders demanding greater voice. Whether corporate managers will again emerge as winners remains to be determined.

CONCLUSION

This Article has presented nineteenth-century shareholder voting rights in a new light, expanding the conventional account from one dimension of legal change to three. This new account is not merely academic—it helps us understand present-day currents that are shaping corporate law.

By the nineteenth century’s end, an evolving paradigm revealed three groups jockeying for power inside firms: wealthy elites holding large blocks of stock; corporate managers, who often sought a role at the top of the corporate hierarchy with little financial stake; and a growing mass of small stockholders. Legal innovations in shareholder voting over the nineteenth century created a nearly constantly changing balance of power in corporate governance, which was made only more complex by economic developments in a dynamic, industrializing economy. Against this backdrop, the balance of power inside firms was slowly tilting in favor of corporate managers, who entered the twentieth century with the upper hand.

In nineteenth-century America, per-share vote allocations were an important determinant of shareholder voting power, and so were two other dimensions of shareholder voting: the rights to delegate and to cumulate the shareholder vote in a corporate election. As this Article has shown, these three dimensions of shareholder voting developed dynamically over what was, in hindsight, a century of kinetic change in corporate power. The three-dimensional model helps explains that kinetic change—and provides a new perspective on the rise of one-share-one-vote—while reconceptualizing the present. When we cease to focus exclusively on vote allocations, our picture of shareholder voting rights gains significant depth.

This Article’s new account of nineteenth-century history suggests that the rise of proxy voting contributed to the shift to one-share-one-vote. The question of why democratic corporate voting was replaced by one-share-one-vote over the nineteenth century remains an important, if unresolved, historical mystery. Today we know, for example, that the shift to one-share-one-vote was essential to the emergence of the “rationally apathetic shareholder” who devalues or even foregoes control rights.³⁰³

Assessment of nineteenth-century shareholder voting rights reveals not only three interactive dimensions of shareholder voting, but a tripartite division of power operating behind them. The three-group paradigm is evident in the changing mix of voting-rights laws and the interests that these changes served. Graduated voting schemes, which were common in the early nineteenth century, curbed the voting power of wealthy block-holders in favor of small shareholders. Proxy voting, too, held promise to empower small shareholders—but was swiftly co-opted by corporate managers to enhance their own power. Corporations that used restricted voting were particularly vulnerable to proxy abuse. In a few states, legislatures enacted laws prohibiting proxy voting by managers—but states also responded with a gradual shift in favor of one-share-one-vote, first as a default and later as a mandatory rule. One-share-one-vote shifted power in favor of wealthy block-holders, problematizing shareholder governance all over again. The invention of the right to cumulative voting, in the last three decades of the century, functioned to restore a measure of voting power to small holders as a partial response to vote allocations and proxy practices that had empowered both large block-holders and corporate managers. The political popularity of cumulative voting was a testament to Americans’ urgent desire to rebalance power inside corporations.

The three-group paradigm is important not only because it lies behind the three-dimensional change in shareholder voting rights during the nineteenth century (and today), but also because it stands in contrast to the two-group paradigm that would go on to define twentieth-century corporate theory. Early twentieth-century corporate theorists noted an emerging separation of ownership and control, and law-and-economics scholars characterized the separation as involving two—not three—corporate constituencies battling each other for dominance. The separation of ownership and control collapsed distinctions among shareholders and treated wealthy, block-holding shareholders and working-class, small shareholders as members of a monolithic group. In the classic model, shareholders and managers faced off across a bilateral divide. Yet, a close history of nineteenth-century shareholder voting rights suggests a trilateral power struggle, one that was recognized politically and in law.

Recent developments are challenging paradigms that were nearly set in stone by the end of the nineteenth century. Two of the three dimensions of shareholder voting rights are once again in flux, with dual-class structures responding to re-concentration and with new rules around mutual fund voting, broker voting, pass-through voting, and the universal proxy. Though the ultimate result of these changes cannot be known—and though today’s change is being driven at the national level, in contrast to the nineteenth century’s state-by-state change—the history of nineteenth-century shareholder voting rights provides some clues about what happens when parallel sets of rules governing shareholder voting rights evolve in relation to each other. Winners and losers will emerge as power resolves itself through the shareholder franchise.

96 S. Cal. L. Rev. 881

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Sarah C. Haan*

* Class of 1958 Uncas and Anne McThenia Professor of Law, Washington and Lee University School of Law. For their thoughtful feedback on drafts of this article, the author thanks Eric Hilt, Andrew Jennings, Elizabeth Pollman, and Jonathon Zytnick, and the faculties of Brooklyn Law School and the University of Houston Law Center. She is grateful to Alexander Keyssar for his generous insights, and to the editors at the Southern California Law Review for their superb editing.

Inflation, Market Failures, and Algorithms

February 2024February 2024Rory Van Loo*

Inflation is a problem of tremendous scale. But the leading response to inflation—raising interest rates—also poses economic risks. Raising interest rates rapidly may increase unemployment and heighten the chance of recession. This Article argues that there is a better way to think about anti-inflation policy. Rather than defaulting to interest rate hikes that harm markets, policymakers should prioritize laws that lower prices while improving markets. Most importantly, there is evidence that businesses have raised prices by colluding with one another, exploiting consumers’ behavioral and informational limits, and lobbying for protectionist laws that block competition. Artificial intelligence pricing algorithms and dark pattern online manipulation tools have further enhanced businesses’ ability to charge higher prices. Although those preexisting market failures did not cause the high levels of inflation that began in 2021, they create new inflation challenges and opportunities.

A key challenge is that in an era of automated pricing algorithms and market failures, direct solutions to inflation, like the end of the war in Ukraine, may not bring the full level of lowered prices that would be otherwise expected. Fortunately, market failures now also provide an inflation-fighting tool that would not otherwise exist—like a piggy bank of market improvements that the law can break open to offset some portion of inflation. Interest rate hikes would surely still be needed, perhaps to address the bulk of inflation, but avoiding even a small amount of economically harmful rate hikes is still worthwhile. Many of these market improvement opportunities lie in existing administrative agency authority, but considerably more could be done through new legislation, such as a wide-ranging Price Transparency Act. Moreover, these legal reforms are desirable independent of inflation because they would improve efficiency. Thus, policymakers should resist the urge to rely solely on interest rate hikes that destroy wealth and should instead simultaneously pursue legal rules that promote prosperity. Doing so could even transform a grave crisis into a tremendous economic opportunity.

INTRODUCTION

The dominant narrative surrounding inflation is that we must pick our economic poison: high inflation or high interest rates. Doing nothing and allowing high inflation to continue can cause economic volatility and leave people poorer if their wages fail to keep up.¹ Unfortunately, the leading policy response currently being deployed—increasing interest rates—also tends to be economically harmful, even if less harmful than inflation.² The aim of interest rate hikes is to encourage less spending, which brings down prices. However, lower spending levels also slow down the economy and increase the chance of a recession.³ Rising interest rates thus risk increasing poverty, eliminating jobs, and making households of all income levels worse off.⁴

What if this choice between two poisons is framed incorrectly? This Article argues that lawmakers and scholars have paid insufficient attention to a more attractive policy tool for helping to reduce inflation: using legal authority to correct market failures. Three categories of market failures are particularly worthy of greater consideration. First, inflation policy conversations proceed without considering the research, especially related to behavioral economics, that suggests that even prior to the recent rise in inflation businesses deployed numerous strategies to cause customers to pay higher prices on everything from mortgages to paper towels.⁵ Price transparency laws can help consumers find the best deals and thereby counteract those price increases.⁶ Second, another overlooked way to fix market failures would be to remove excess licensing laws, which raise consumer prices by requiring everyone from hairstylists to casket sellers to undergo training and pass an exam before offering their services.⁷ Finally, scholars and policymakers have paid some attention to antitrust as an inflation-fighting tool, but most have dismissed that possibility without analyzing the institutional nuances of different types of antitrust intervention and how they might fit into a broader anti-inflation toolkit.⁸ Because legal reforms in each of these areas—price transparency, government licensing, and antitrust—move markets toward what economic theory refers to as their “perfect” equilibrium,⁹ they will be referred to below as “market improvement laws.”

Importantly, effective market improvement laws are desirable even in normal times. They would overall increase efficiency, promote economic growth, raise employment, and make a dent in economic inequality.¹⁰ Consequently, this Article concludes that policymakers should prioritize addressing whatever portion of inflation is possible through market improvement laws and other laws that are overall more economically beneficial.¹¹ Whether that amounts to reducing one point of inflation through market improvements or ten points, and even if interest rates still need to be used in addition to market improvement laws, the result would be some quantity less of interest rate increases that have heavy economic costs.

Despite the economic appeal of market improvement laws, scholars and lawmakers have almost completely ignored them in fighting inflation. The market improvement reforms that this Article concludes are most immediately promising—price transparency laws—are not even part of those debates. Although antitrust laws had their legislative moment in the spotlight in the 1970s,¹² scholars dismissed the idea that they could be used to reduce inflation based on many arguments that are not valid today, if they ever were.¹³ These various objections are considered in greater depth below, but one common argument is that market failures did not cause inflation and thus it would be a mistake to look to market failures as a solution.¹⁴ However, that reasoning would mean that we should not rely on interest rates to address all of inflation either, since the war in Ukraine and supply-chain disruptions in China caused much of the current inflation. Yet interest rates are used without asking whether they are addressing the direct causes of inflation. Despite the limits to such objections, similar arguments are being repeated today to dismiss the idea of using antitrust.¹⁵ The real question should instead be what will work to address inflation.

If win-win market improvement laws exist, why would so many observers overlook and even dismiss their importance without engaging in a more nuanced legal institutional analysis? Although politicization clouds the debate, conceptual barriers also impede a comprehensive analysis. As a threshold matter, the scholarly inattention to market improvement laws partly reflects intellectual silos. Economists, like legal scholars, are not generalists. They focus on either macroeconomics or microeconomics, and within those broad areas have further specializations. Inflation lies in the domain of macroeconomics. Indeed, the leading alternatives to interest rates that lawmakers have pursued are macroeconomic tools such as taxes and federal spending, as demonstrated by the Inflation Reduction Act of 2022.¹⁶ Yet consumer law, antitrust, and other market improvement laws are the domain of microeconomics.¹⁷ Further complicating matters, most legal scholars engaging in economic analysis focus on microeconomics.¹⁸ Although areas such as financial regulation involve macroeconomic considerations, the broader inattention to macroeconomics has prompted the observation that “[l]aw and economics should be called law and microeconomics.”¹⁹ Consequently, most of the scholars best situated to design microeconomic market improvement laws rarely pay attention to macroeconomic issues like inflation.²⁰

These conceptual silos may help explain why the macroeconomic inflation toolkit has not fully incorporated recent microeconomic evidence about market failures. Inflation has not been a major problem in the U.S. since the early 1980s.²¹ Whereas in 1980 the average markup on goods sold in the United States was 21% above cost, by 2016 that figure had reached 61%.²² This data alone suggest that there could be a far greater magnitude of opportunity for the law to improve markets than there was in 1980.²³

Moreover, since 1980, firms have greatly enhanced their capabilities to deploy behavioral economics insights and algorithmic pricing to push consumers into paying higher prices, including through online interfaces designed to confuse shoppers, known as “dark patterns.”²⁴ The portion of U.S. employees who need a license to legally work grew from 5% in the 1950s to almost 30% by 2013, thereby raising the average prices people pay by about an estimated 15% on everything from cosmetology to funeral services.²⁵ And over the last two decades, the average market concentration level increased 90%, meaning that a smaller number of companies now hold greater market share throughout the economy.²⁶ Although the consequences are disputed, several leading studies have found growing market power over time.²⁷

Thus, interest rates became the default anti-inflation tool in a prior world with fewer market failures and when automated profit-maximizing algorithms did not drive market prices. In 1980, when markups were only 21% above costs, there may not have been much room to push prices lower while addressing market failures, especially because some markup is needed above costs for a business to survive.²⁸ Whatever the merits of scholars’ dismissal of antitrust as a tool for combatting inflation in the 1970s and 1980s, the last time the issue received significant attention, that issue should be reexamined in light of major subsequent market developments.²⁹

Although the question of magnitude of impact is difficult to determine, as a threshold matter it is worth observing that markup increases from 21% to 61% are not insignificant next to the concerns about inflation of about 8% or 9% annually.³⁰ Yet instead of starting with anti-inflation tools that increase prosperity, lawmakers have allowed the country to rely mostly on interest rate increases that lower prosperity for all, as they did in the 1970s and 1980s. Legal scholars have also not turned their attention to the connection between market failures and inflation in any sustained manner.³¹ In short, there is an absence of sustained effort to update the anti-inflation policy paradigm to the modern algorithmic markup economy.

To reach the conclusion that microeconomic market improvement laws deserve greater attention in a macroeconomic inflation policy toolkit, this Article synthesizes the theory and evidence. It shows why many of the main reservations about market improvement laws can be addressed with a more comprehensive legal and economic institutional analysis. It also offers a framework for analyzing inflation laws that shows why many of the dismissals of market improvement laws rest on an incomplete economic picture.

Although a comprehensive economic cost-benefit analysis anti-inflation framework has many components, one of the most essential is giving greater weight to the side effects that inflation policies have on the economy beyond inflation. Once the side effects are not assumed to be inevitably negative, and are given greater weight, it becomes difficult to justify ignoring market improvement laws that advance both total wealth and distributional goals. Regardless of the magnitude of their impact on inflation, such laws should be the highest priority largely because they benefit society regardless of their impact on inflation. Whatever portion of interest rate increases they prevent can save the economy from damage that does not need to happen.

Another key factor in an anti-inflation framework that has received insufficiently nuanced analysis is the ease with which they can be implemented. Once that administrability factor is analyzed more fully, for example, it becomes clear that the market improvement laws that have defined past debates—especially antitrust laws that would address oligopoly industries—suffer from major limitations that other market improvement laws do not. For instance, the most significant antitrust remedy for reducing monopoly power—breaking up large companies—typically takes years to implement and may cost the broken-up firm billions of dollars to complete.³² Thus, lower prices from breakups may not materialize for years.

In contrast, price transparency laws are better situated to create a fast reduction in prices. For example, consider a 2015 Israeli regulation that required stores to make their price information available in machine-readable form.³³ That law was aimed at allowing third-party price comparison tools to help consumers locate the best prices.³⁴ Within eight months of that regulation’s enactment, prices had begun to decline, and within two years of the regulation’s enactment prices decreased by an average of 4% to 5%.³⁵ Price transparency laws may even overall act on prices faster than an increase in interest rates.³⁶

The point here is not that antitrust law should be ignored as an anti-inflation tool. Indeed, some areas of antitrust law could have a quicker effect on pricing, such as investigations into price fixing.³⁷ It is also possible that price transparency laws with faster price effects might be accompanied by antitrust remedies whose impact will take a few years, thereby offering a more enduring market improvement package for lowering inflation.

Instead, the point is that a more in-depth consideration of administrability shows how structural antitrust interventions may be less immediately helpful than other market improvement laws. Additionally, since these difficult-to-administer antitrust laws have dominated consideration of market improvement laws, the focus on them negatively skews perceptions of the extent to which market improvement laws should be considered in fighting inflation.³⁸

These dynamics speak to a final institutional implication. Limited governmental resources and a dysfunctional legislative process mean that Congress and other governmental leaders do not implement every important policy that should exist on the economic merits. Thus, simply because a policy would improve efficiency does not mean it will be enacted as law. Yet the threat of a recession is a well-known way to break political impasse.³⁹ Consequently, inflation could provide the means to enact market improvement laws that will leave the economy better off than when inflation began its precipitous rise. Responding to inflation with an emphasis on market improvement laws therefore channels the wisdom that policymakers should “[n]ever let a crisis go to waste.”⁴⁰

The Article proceeds as follows. Part I explains the theory behind why market improvement laws can help to combat inflation. In so doing, it addresses common objections to looking beyond interest rates. Part II reviews the evidence that market failures drive up prices, and that legal reforms can bring them back down. Part III offers several concrete suggestions for reform, ranging from a universal price transparency statute to inflation impact statements. It also sketches a framework for choosing among inflation policies. That framework shows the potential to build an anti-inflation toolkit rooted not in weakening the economy, but in strengthening it.

I. THE THEORY: WHY IMPROVED MARKETS CAN LOWER INFLATION

Economic theory alone cannot determine the best anti-inflation policy. But theory is important, particularly because empirical evidence is usually insufficient to dispositively prove that any one policy choice is optimal.⁴¹ Several theoretical considerations provide essential foundational support for the possibility of using market improvement laws to counter inflation. The theory behind relying on interest rates tends to fail to recognize that (1) unlike interest rates, some alternative anti-inflation policies cause no economic harm or even have economic benefits; (2) market improvement laws can offset inflation from even unrelated causes, such as wars; (3) market improvement laws can complement direct inflation efforts; and (4) efficiency considerations alone have not produced all beneficial market laws. Each of these oversights will be taken in turn, in the process laying the theoretical foundations for a more comprehensive anti-inflation framework.

A. Avoiding Economic Harm Should Be a High Priority

All else equal, policymakers should seek to lower inflation through interventions that avoid as much collateral economic damage as possible, and ideally even through interventions that help the economy. Arguably price controls are disfavored for this reason. When inflation skyrocketed in the 1970s, an event sometimes called the “Great Inflation,” a period of price controls followed.⁴² Most aggressively, in 1971, President Nixon issued an executive order freezing wages, rents, and prices for ninety days.⁴³ That shock briefly decreased inflation, but by the mid-1970s those freezes had contributed to a recession.⁴⁴ Largely because it is believed that they “eventually lead to the destruction of the free-enterprise system,”⁴⁵ price controls are a heavily disfavored tool for fighting inflation.⁴⁶ Thus, minimizing economic harm is a priority in choosing how to respond to inflation.

Compared with price controls, interest rates are seen as a more appealing tool because they leave intact markets’ ability to set prices based on supply and (reduced) demand rather than a government-commanded price. However, interest rate increases still distort markets by causing a retraction in spending.⁴⁷ That raises the question of whether preferable responses to inflation exist that would have less dire consequences.

Policymakers considered such an option in the 1970s, when lawmakers passed legislation strengthening antitrust and the Federal Trade Commission (“FTC”) exercised its authority more aggressively.⁴⁸ It is difficult to know what effect these reforms had on inflation.⁴⁹ Nonetheless, one point is worth recognizing, because it speaks to the possibility of using market improvement laws today. Unlike with price controls and interest rate increases, there is no strong evidence that the increase in antitrust enforcement in the 1970s harmed the economy. Instead, there are good reasons, based in theory and evidence, to think that effective antitrust laws, like other market improvement laws, strengthen the economy.⁵⁰

Faced with a choice between two tools for lowering inflation, one that is viewed as harming the economy (interest rates) and one that is viewed as strengthening the economy (market improvement laws), it would seem straightforward to choose the latter. Since market improvement laws are preferable to interest rates on the issue of their economic effects outside of inflation, the main sources of resistance to them must lie in questions about whether and how they affect inflation.

B. Market Interventions Help Even If One-Off and Unrelated to Inflation’s Causes

One of the main sources of resistance to using antitrust to combat inflation, both in the 1970s and more recently, is that shortcomings in competition did not create inflation.⁵¹ As a result, even in the best-case scenario, antitrust solutions leave in place the structural causes of inflation.⁵² That means that antitrust, and by extension market improvement laws more broadly, are seen as one-off while inflation occurs on an ongoing basis.

For instance, when gas or grain supplies shrink due to the Russia-Ukraine war, there is a real increase in cost because the supply has been lowered, and price is the product of supply and demand. Additionally, a potential structural demand-side contributor is an increase in the supply of money, such as through a government stimulus package, which can increase demand because people have a greater capacity to spend.⁵³ Critics have thus argued that antitrust is an inadequate response to inflation because it can only be used once and does not address the inflation’s ongoing structural causes.⁵⁴

Before responding to that concern, it is helpful to address a threshold mathematical issue that can lead to confusion. Inflation is calculated by averaging the prices paid on a large list of goods and services, ranging from medical expenses to paper towels. Those weighted average prices are then compared to the prices paid in a previous time period, to obtain an average price increase. Inflation is thus the rate of change in prices as measured by the percentage increase between two periods. Consequently, anything that causes the prices to change between those two periods averaged—whether market anxiety, a war abroad, supply-chain disruptions, greater competition, or something else—can contribute to raising or lowering the inputs to the number reported out as inflation. And because inflation is based on weighted average prices across markets, that average can be brought up or down by even industry-specific market improvements whose effects would then feed into the average price.⁵⁵ Of course, there may be differences in the magnitudes or timing of the price reductions and the degree to which the reductions are sustained, as discussed in Part III. But as a purely mathematical matter, market improvement laws can offset price increases resulting from structural causes of inflation between those two measured points in time.

Nonetheless, the core proposition in the critiques that market failures did not necessarily cause most of inflation is correct. It is also therefore true that improving markets may leave in place contributors such as high demand and supply chain breakdowns.⁵⁶ However, interest rate changes do not necessarily directly address the bulk of inflation’s structural causes either, such as supply chain shortcomings and the Ukraine war in the current inflationary period.⁵⁷ A requirement that only the causes of inflation can be deployed in response to inflation would mean that we cannot use interest rates to address inflation caused by these supply-side developments, such as the war in Ukraine. Yet clearly that is not how either policymakers or scholars approach inflation, and thus we should not dismiss market improvement laws simply because market failures are not the direct cause of all inflation that exists.

Perhaps the most generous way to view this critique is as speaking to the perceived comprehensiveness of the solution. After the desired market improvements are achieved, prices could not be reduced further because businesses cannot sell below cost for sustained periods. Yet because market failures did not cause the inflation, some level of inflation may still remain after market improvement interventions. Accordingly, once market improvement laws reach their limits in addressing market failures, they also reach a ceiling for lowering inflation. In contrast, at least in theory, interest rates can be increased indefinitely over a span of many years.⁵⁸

This concern ultimately speaks to the issues of magnitude and timing. A threshold observation is that because most conversations focus on antitrust, the magnitude of price reduction assumed to be possible is less than it would be if the array of legal reforms considered also included consumer laws and reduced occupational licensing. If each of these areas can lower prices by two percentage points each year, together they can offset a more meaningful magnitude of inflation each year, six percentage points each year, than any one of them could individually. Indeed, a series of one-time market improvement reforms could lower inflation for several years, in ways that are in some ways interchangeable with a series of interest rate hikes over several years—interchangeable at least in the sense of the impact on the announced inflation figures.⁵⁹ For now, the point is theoretical, but Part II will explore the empirical evidence of the potential magnitude of price reduction in each of these areas.

Pushing this point further, in theory, market improvement laws could even in some inflationary contexts serve as the sole anti-inflationary policy tool. (To be clear, in reality, given questions of magnitude and administrability discussed in greater depth below, market improvement laws are more likely to be partial supplements for interest rate hikes in high-inflation periods).⁶⁰ By way of illustration, imagine a simplified island-nation that sells two products, bananas and coconut water, each accounting for half of households’ expenditures. The bananas are sold by a cartel for $10 per bunch, even though without price fixing the price would be $8 per bunch. Coconut water is sold at a competitive price of $10 per gallon. Now imagine a storm decimates the island’s coconut trees, such that the price per gallon of coconut water increases to $12. The supply-side shock would cause inflation of 10%, from an average price paid of $20 to an average price paid of $22. If authorities responded by prosecuting the banana cartel, thereby pushing the price of bananas down to $8 per bunch, the total price level would be driven back down to $20 ($8 for bananas and $12 for coconuts), thus containing inflation. This containment of inflation could last long enough for the island’s coconut producers to plant enough trees, or find alternative sources of coconuts on nearby islands, at which point the price of a gallon of coconut water could move back towards its pre-inflationary level. Under these assumptions, the antitrust intervention would have served as the sole inflation-reducing intervention needed.⁶¹ Moreover, the result would be a more competitive economy post-inflation due to the removal of the cartel.

Of course, the economic implications of such a policy become much more complex with a dynamic rather than a static model, and in a real economy. Still, this hypothetical illustrates how a market improvement policy can be used as the primary tool for responding to inflation despite not at all addressing the causes of inflation. Applying this reasoning to the current macroeconomic context, the war in Ukraine, labor shortages, and the supply-chain constraints from lockdowns in China have contributed significantly to inflation but may require several years to resolve. If market-oriented price reductions offset the price effects of some of those temporary structural contributors to inflation, they could in theory reduce inflation until those direct structural causes can be resolved. At a minimum, assuming market improvement reforms could not address all of the excess inflation, they could require some amount less of interest rate increases and thereby lessen the resulting collateral economic risks and costs of addressing inflation.

A related issue is that policy responses to inflation involve a prediction about the likely persistence of the shock to prices. One-time, short-term shocks that increase prices would ultimately provoke different policy responses, if any at all, compared with shocks expected to persist. For policy shocks that last for long periods, say decades, one-off market interventions may in the larger picture prove to be of more limited help, such as only delaying the inevitably large-scale interest rate increases. In such a scenario, market improvements could still be economically beneficial, but a less significant part of the overall response to inflation.

Two points provide valuable perspective here. First, when central banks make decisions about interest rates, they will often need to make highly uncertain predictions about the potential persistence of price shocks. It would be almost impossible to reliably predict, for instance, how long the war in Ukraine would depress energy and food supplies or how long supply chains would be disrupted by China’s COVID policies. In the face of such uncertainty about persistence, arguably the case is even stronger for starting with one-off investments in market improvements as the default initial response to signs of inflation. Then if it turns out that inflation is more enduring, policymakers would always have more aggressive interest rates as a backup or to make up the difference. So faced with uncertainty about the persistence of inflation, and about whether we’re dealing with a short-term shock, the smarter choice may still be to double down on market improvement policies that are beneficial either way, rather than potentially harming markets unnecessarily.

Second, many instances of inflation would have at least some direct structural solutions that will eventually arrive and that are preferable to interest rate increases—such as the end of a war, investment in alternative energy sources, and supply chain improvements. Additionally, interest rate increases are typically implemented gradually over many years. Simply classifying the shock as either a permanent change in the rate or a one-off event seems too binary of an analysis, whereas most causes and solutions will lie on a spectrum of duration depending on how long various structural solutions will take to arrive. Again, by offsetting some portion of otherwise needed interest rate increases in the first five to ten years of inflation, market improvement laws could, in theory, still end up preventing some level of interest rate increases in years eight to ten of an inflationary period, by buying time for slower structural causes to arrive.

Furthermore, this gap-filling effect can offer a different type of long-term benefit because inflation can result from purely psychological factors rather than any structural cause.⁶² In other words, even if there is no shortage of supply or increase in demand, prices can go up (or stay up) if people expect inflation.⁶³ For instance, if there are widespread rumors that inflation will happen, many consumers might decide to quickly purchase large amounts of goods at the current price. The sudden spike in demand can drive up prices, further stoking fears of inflation.⁶⁴ Consequently, market improvement laws could prevent—or lessen the intensity of—longer lasting, self-fulfilling inflation by keeping the expectation of inflation from ever taking root in consumers’ minds, even if the direct impact on prices from market improvement laws only lasts a few years as a gap-filler until structural causes of inflation can be resolved.

In short, it would be a mistake to require that inflationary solutions directly address the causes of inflation or have the potential to address the entirety of inflation in order to be considered. Nor should market improvement laws be dismissed simply because they lead to one-off price changes while inflation is a rate of change. The more important question is whether market improvement laws can help meaningfully ameliorate inflation. At a minimum, when the direct causes of inflation have potential direct solutions that will potentially arrive within a few years, market improvement laws can still offset some of that inflation because they can lower prices with comparable if not greater speed than interest rate increases.⁶⁵

C. Market Failures and Algorithmic Pricing Are Relevant to Direct Solutions

There is a certain irony in criticism that market improvement laws do not address the structural causes of inflation. Those critiques have overlooked a key feature of market improvement laws. Such laws have a potentially important supportive role to help address inflation’s direct causes. That supportive role may be especially important in an era of algorithmic pricing and widespread market failures.

To have their full impact, direct solutions may depend on market improvement laws. Assume that structural shocks—such as China’s COVID-19 shutdown, which deprived factories of workers—increase prices by ten percentage points, but only for a year or two. If consumers are not discerning enough to choose sellers who quickly adjust prices downward after that shock has passed, then what could have been a temporary price hike can become a sustained price increase because consumers, on autopilot, are continuing to purchase as before or expecting prices to continue rising. Temporarily high inflation may thus condition consumers to expect ongoing high levels of inflation.

Price transparency laws are perhaps uniquely situated among legal reforms to eliminate this potential psychological contribution to inflation. Antitrust alone cannot fix this problem, because consumers need to be able to understand and locate low prices to provide competing businesses with sufficient incentives to offer them.⁶⁶ If consumers can quickly understand that the structural increases in costs amount to only four percentage points, a ten percent price increase should arouse their suspicions and drive them to look for a better deal. Consumers would thereby reward sellers offering lower prices by seeking them out rather than assuming such sellers do not exist.⁶⁷ Increasing consumers’ accuracy in understanding prices may therefore be necessary for direct solutions to lessen the level of inflation fully.

Market improvement laws may also directly contribute to addressing inflation before structural solutions arrive. Structural and psychological factors can combine to contribute to high levels of inflation.⁶⁸ For instance, if there are structural reasons for an additional price increase of two or three percentage points, people may expect the impact to be even higher, such as eight percentage points. Moreover, the rapid changes in price mean that prices learned in past shopping trips are no longer relevant. Consequently, assessing current prices becomes more cognitively difficult. The research on behavioral economics suggests that the greater the cognitive load, the easier it is for sellers to charge anticompetitively higher prices.⁶⁹ As a result, consumers may have more difficulty determining the true competitive price during inflationary times.⁷⁰

Businesses would be expected to exploit these consumer expectations and cognitive limits. Unfortunately, that issue has become politicized, as if the whole problem of inflation can be reframed as “greedflation.”⁷¹ But once this conversation moves away from such framing, the idea that businesses would charge the highest prices possible simply restates economic theory about how markets work.⁷² Furthermore, managers arguably have a fiduciary duty to charge the highest prices legally possible in order to maximize shareholder value or would see themselves as having such a duty.⁷³

Unlike in prior periods of high U.S. inflation, today many managers need not ever even consciously decide to capitalize on inflation or be aware that such behavior is occurring. Many prices are set by automated algorithms instructed to maximize profits.⁷⁴ An effective algorithm following those instructions would be expected to exploit whatever confusion arises from inflation, whether the manager knew that was happening or not. It is possible that whereas managers observing lowered costs as inflation subsides would lower prices assuming that consumers would expect such adjustments, algorithms would only do so once the consumers show, through market behavior, that they expect lower prices. Indeed, in theory, the algorithm could even learn from an inflationary period that prices could be more rapidly raised and encourage continued price increases. In other words, the algorithm would be trained to encourage inflation. Inflation would thereby become an algorithmically reinforced phenomenon. Although the research on automated pricing algorithms is still nascent, there is evidence that these algorithms increase prices.⁷⁵

At a minimum, policymakers would ideally consider the possible effects of algorithms on inflation. An anti-inflation toolkit that fails to consider the possible changes to inflation introduced by algorithmic pricing could produce more muted price reductions than in prior eras. That would necessitate even greater interest rate cuts to achieve the same level of price reduction as in the past, meaning more economic harm would be caused and an increased risk of recession. It follows that market improvement laws that improve consumers’ ability to advance their interests in the face of algorithmic pricing could prove to be a valuable tool in either avoiding algorithmically enhanced inflation or in getting more of an anti-inflation effect from addressing the original causes of inflation.⁷⁶ Without such laws, there is a risk that perceptions of inflation—and businesses’ inevitable efforts to exploit those perceptions—will cause inflation to endure long after the original structural contributors have ended.

D. Lawmakers Have Not Necessarily Produced Efficient Laws

Skepticism about using market improvement laws against inflation sometimes implicitly assumes that little or nothing more can be done to improve markets.⁷⁷ That assumption might seem sensible at first glance because an independent basis exists for market improvement laws: efficiency. Efficiency has long been one of the most powerful influences in designing the law.⁷⁸ Since market improvement laws already have such a persuasive intellectual cornerstone pushing them forward, it is understandable why observers might posit that the extra motivation added by inflation would be inconsequential. After all, if there are legal rules that would move markets toward perfection, they would improve efficiency and thus they would be expected to already exist.

If this assumption were true, lawmakers would have already passed up-to-date price transparency and antitrust laws and would have previously removed any excess governmental licensing. State and federal lawmakers would also have refrained from succumbing to interest groups’ lobbying for laws that provide protections for various products and occupations. Under this assumption, the Department of Justice (“DOJ”) and FTC would also already have all the authority, resources, expertise, and motivation necessary to prevent price increases resulting from market failures. In such a world, there would be no additional room for legal reforms to push prices down and meaningfully address inflation.

However, that assumption is suspect. There is a rich literature arguing that laws are not passed as a result of a rational process that reflects society’s best interests.⁷⁹ Laws are instead the product of a messy set of interest group advocacy and political considerations that often reflect powerful opposition to regulation.⁸⁰ More specifically, scholars have observed these political economy dysfunctions in each of the three areas of market improvement laws. Consumers have had limited success in bringing about favorable price transparency and licensing laws because they are so dispersed,⁸¹ whereas concentrated industry lobbyists exert great influence on legislatures.⁸² And a consensus has emerged that the antitrust framework has fallen far short, even if there is disagreement about the best ways to improve that framework.⁸³ Stated otherwise, the skeptics have inadequately considered how institutional dysfunctions make it unlikely that the law has done everything it can to prevent widespread market failures that cause high prices.

Ultimately, each of the theoretical points made in this Part hinges on an empirical claim about whether most of what can be done to address market failures has already been done. Thus, to have a full sense of the potential for market improvement laws to meaningfully reduce inflation, the next Part turns to the empirical evidence.

II. THE EVIDENCE: MARKET IMPROVEMENT LAWS CAN LOWER INFLATION

Part I showed that, in theory, inflation can be addressed by improving consumer markets, rather than by holding them back. That theory rests on two key empirical assumptions: (1) market failures significantly raise consumer prices, and (2) legal reforms can address those market failures. This Part summarizes the evidence relevant to both assumptions, divided into the three areas of market improvement laws: price transparency, licensing, and antitrust.

Before turning to that discussion, a caveat is in order. A well-known limitation of macroeconomics is the ability to predict magnitude, as demonstrated by the difficulty in estimating what the effects of any given interest rate hike will have on inflation.⁸⁴ Microeconomics offers greater precision by studying a particular market, but a similar magnitude challenge plagues the study of aggregate market failures across the economy, in part because information about costs, prices, and preferences are often unavailable.⁸⁵ Thus, market improvement laws face predictive difficulties, but since other anti-inflation tools face related limits, that should not be grounds for dismissing market improvement laws. It bears emphasis that this Article’s core arguments do not depend on establishing any particular magnitude of market failure. They instead depend on concluding that there are some significant price-increasing market failures that the law can address.

A. Market Failures Significantly Raise Consumer Prices

Despite empirical limits, a growing body of empirical research has begun to quantify the higher prices paid due to inadequate price transparency, occupational licensing, and antitrust laws.⁸⁶ The following summary aims to provide a sense of the potential magnitudes rather than to establish any particular level of price increases.

1. Price Transparency Market Failures

Businesses systematically charge consumers higher prices by making it harder to compare options. The list of tactics that businesses use for this purpose is too vast to summarize. In one common strategy, known as drip pricing, businesses shift costs to later phases in the purchase process.⁸⁷ Airlines charge fees for baggage, printer manufacturers charge high prices for ink refills, and Airbnb adds cleaning and convenience fees that significantly increase the final price beyond what originally appeared in the search results.⁸⁸ Researchers have found that these practices weaken consumers’ ability to compare full prices—even if consumers know that those costs will be added later.⁸⁹ As another example, companies offer teaser rates for online subscriptions or credit cards, knowing that many people will not follow through with unsubscribing or changing credit cards before the prices increase.⁹⁰

Behavioral surcharges are not limited to complex purchases. Even in seemingly straightforward retail settings, sellers like Walmart and Target implement countless strategies to profit systematically from “market manipulation.”⁹¹ For instance, stores put higher-price items where most consumers’ eyes naturally gravitate on the shelves and misleadingly frame prices as being “discounted” from some original higher price.⁹² The ability to influence people’s choices has only grown in the digital era. Sellers scientifically study details including facial patterns of people in advertisements and the ordering of items on the screen.⁹³ I have previously argued that such practices, both across retail and the broader economy, have macroeconomic implications for issues such as the distribution of wealth.⁹⁴ These strategies, and countless more like them, may sound trivial, but for the purposes of anti-inflation, it is important to view them through an empirical lens.

Economists empirically studying the resulting price effects have consistently found that these strategies cause consumers to pay significantly more. For instance, excessively complex cell phone plans were associated with 8% higher consumer prices.⁹⁵ Hiding mandatory fees on StubHub until later in the purchase process increased ticket payments by 21%.⁹⁶ Even in straightforward online settings, where price comparisons are a click away, economists have linked obfuscation practices such as lengthy product descriptions and add-on shipping costs to price increases of possibly around 6%.⁹⁷

In short, the empirical evidence indicates that a lack of pricing transparency significantly increases prices by exploiting informational and behavioral market failures—even for products of identical quality.⁹⁸ Moreover, many of these studies only look at one pricing strategy. Therefore, the full effects of multiple practices could produce even higher magnitudes of increased prices.⁹⁹ Inflation policies designed in an era before these practices became widespread do not reflect a comprehensive understanding of consumer prices today.¹⁰⁰

2. Licensing Law Market Failures

Legislatures regularly enact laws that insulate existing market participants from competition and consequently produce higher prices in consumer transactions. For example, tariffs increase the prices of foreign sellers, thereby enabling domestic sellers to charge higher prices.¹⁰¹ Less widely recognized is that state license laws protect about 25% of occupations.¹⁰² These laws require massage therapists, hair braiders, fortune tellers, and many others to satisfy various conditions to work. They typically mandate that the aspiring worker complete a year of expensive training, pay hundreds of dollars for a license, and pass a licensure exam that also comes with a fee.¹⁰³ Some licensing provides valuable quality control, but the restrictions often go beyond what is needed for consumer protection—such as Louisiana and Tennessee statutes requiring that caskets only be sold by licensed sellers.¹⁰⁴ Economists have found, for instance, that some licensing restrictions raised dental service prices by over 10% without improving oral health.¹⁰⁵ Evidence also suggests that legal reforms giving nurse practitioners greater licensing independence reduced prices by as much as 16% without diminishing the “quality and safety of health services.”¹⁰⁶ Economists’ rough estimate of the aggregate impact of licensing restrictions is that they raise consumer prices by about 15% across much of the service economy.¹⁰⁷

Other restrictive laws also reach consumer goods. Laws in all fifty states limit the number of franchises that can sell any manufacturer’s car in a given territory, thereby providing auto dealers with local monopolies, preventing online sales of new vehicles, and making in-person price comparisons difficult.¹⁰⁸ A DOJ study, relying on estimates by Goldman Sachs, concluded these statutes raise prices by 8.6%.¹⁰⁹

A final related category is zoning laws, which often make obtaining a government building permit far more onerous. For example, economists have estimated that such zoning regulations cause a “regulatory tax” on single-family homes of over 50% of the total home value in the San Francisco Bay Area and over 20% in Boston.¹¹⁰ The price impact varies greatly by location, and not all areas have zoning laws. However, because housing has a strong impact on inflation, even a few percentage points would prove particularly meaningful for inflation.¹¹¹

3. Antitrust Market Failures

The empirical study of antitrust is, in key ways, less reliable than research in other areas of market improvement laws. Nonetheless, it provides reason to believe that antitrust could play a meaningful role in lowering prices. Economists have linked many mergers and high levels of industry concentration with lower consumer welfare and higher prices.¹¹² One study of fifty mergers, albeit not necessarily representative ones, found that most of them increased prices, typically by about 10%.¹¹³

Whereas that examination covered numerous industries, other research has focused on particular industries. For instance, since the mid-1990s alone, over one thousand hospital mergers have occurred.¹¹⁴ A large body of research demonstrates that hospital mergers have overall led to higher prices, but not necessarily improvements in health care quality.¹¹⁵ The most comprehensive of these studies, a longitudinal analysis of ninety-seven mergers between 1989 and 1996, found that hospital mergers led to price increases of 40%.¹¹⁶ Studies have found price increases following mergers in other areas as well, including banking,¹¹⁷ insurance,¹¹⁸ and food and beverage.¹¹⁹

Despite this evidence, estimating prices at specific points in time before and after individual mergers faces methodological limitations because other factors may contribute to the measured price differences.¹²⁰ It is also difficult to know what to make of the literature finding that most industries have become more concentrated and dominated by an ever-shrinking number of competitors over the past several decades.¹²¹ The presence of large businesses in a concentrated industry with high markups cannot, by itself, establish that the high markups are caused by the concentration of the industry.¹²² Increased productivity and quality—such as Apple’s advancements in smart phone quality—can contribute to higher markups in concentrated industries.¹²³ And some mergers and industry consolidation have been linked to lower prices.¹²⁴ Thus, the evidence about how industry consolidation has affected consumers is mixed, but it suggests that in at least some industries, such as health care, there are opportunities to promote more competitive prices by improving antitrust enforcement related to mergers and industry structure.

Another potential source of antitrust-related price inflation comes not from mergers or industry concentration but from price coordination among firms. One prominent example is the pharmaceutical industry. After their patents expire, drug companies such as Pfizer, Merck, and Johnson & Johnson often pay other companies to refrain from offering competing drugs. One estimate put the resulting annual price increase at 5% in the costs of pharmaceuticals.¹²⁵

Usually, however, price coordination occurs in a more hidden manner. Legal scholars have argued that unprosecuted price-fixing is widespread.¹²⁶ According to various studies, price-fixing has raised prices to U.S. consumers by 18% to 37% in markets ranging from baby food to cosmetics.¹²⁷ By one estimate, the total cost to consumers globally reaches over half a trillion dollars.¹²⁸

Price-fixing may be more of a problem in today’s economy because prices are increasingly set using algorithms. Businesses’ programmers typically instruct algorithms to find the profit-maximizing price, meaning that the “invisible hand” has become the “digitized hand.”¹²⁹ Intelligently maximizing profits inevitably amounts to finding ways to set prices above the competitive level.¹³⁰ Moreover, the potential magnitude of resulting price increases can be large, with one study showing gas prices increased by 9% to 28% after gas station owners switched from traditional to algorithmic pricing.¹³¹ It is thus plausible that algorithms have expanded what was already believed to be a high level of undetected price-fixing throughout the economy.¹³²

In sum, across price transparency, licensing laws, and antitrust, it would be difficult to estimate the precise total level of market failures causing higher prices across the economy. Many markets have not been studied, whether due to the lack of data available, the resource priorities of researchers, or other factors. Nonetheless, there is evidence of potentially widespread market failures causing higher prices. If so, laws effectively addressing those market failures could lead to significantly lower prices.

B. Market Improvement Laws Can Work

A causal relationship between market failures and high prices implies, but does not necessarily prove, that the law can address those high prices. Given limited governmental resources and reluctance to intervene in markets, it is important to consider the evidence about whether market improvement laws might work.

1. Price Transparency Laws Can Lower Prices

Many consumer laws lower prices. Yet unlike the attention paid to antitrust decades ago, the absence of scholarship considering consumer laws as a response to inflation suggests that this basic function of consumer laws is not broadly understood. One explanation for that inattention is that the most prominent consumer laws tend to be framed in ethical terms, such as whether a company’s practices were unfair or deceptive.¹³³

Part of the disconnect may also be that the few consumer laws that most explicitly target prices only apply in narrow circumstances. Most notably, price gouging laws prohibit sellers from exploiting crises to charge considerably more. For example, sellers risk prosecution if they dramatically increase the price of masks or other medical supplies upon the start of a pandemic.¹³⁴ Another visible area of consumer pricing laws prohibits “unconscionable” prices in areas such as pharmaceuticals and mortgages, which have been described as pricing practices significantly varying from industry standards.¹³⁵ Although relevant as part of a broader anti-inflation toolkit, price gouging and unconscionability do not immediately appear promising for having a large-scale impact on inflation because they are designed to address unusual instances of extreme prices, not routine and systemic price increases across the economy.¹³⁶

Instead, an area of consumer law offers more promise in addressing inflation despite the reality that it is less commonly understood to be about prices. What this Article refers to as price transparency laws is more commonly known as disclosures or nudges and seeks to contain the everyday pricing practices that companies deploy.

Price transparency proposals tend to raise scholarly concerns about the possibility of facilitating seller collusion, and some such mandates have been followed by increases in prices.¹³⁷ However, overall more informed consumer markets tend to lead to lower prices.¹³⁸ As the examples that follow show, how the mandates are designed is important in determining whether they are helpful.¹³⁹

In several field experiments, simply providing consumers with helpful information lowered the prices those consumers paid. In one experiment, researchers found that sending Medicare recipients a letter advising which of the available plans would be best saved recipients 5% in out-of-pocket expenses.¹⁴⁰ In another, disclosures at the point of sale for payday loans lowered borrowing costs by 11%.¹⁴¹

Other studies have found similar effects due to new laws requiring businesses to make prices more broadly available. For instance, consumers paid an estimated 20% less for gas following a law that required electronic billboards on the highways to show all nearby gas stations’ prices.¹⁴² Additionally, as mentioned above, another study concluded that an Israeli statute requiring stores to make their prices and product information available in machine-readable formats led to a 4% to 5% reduction in price.¹⁴³

Other research has looked at interventions that sought to help consumers better calculate prices. For example, many states have mandated that grocery stores provide unit pricing labels on the shelf to facilitate price comparisons.¹⁴⁴ These rules require stores to list per unit prices alongside the full purchase price, like the price per ounce of peanut butter or per battery. This allows shoppers to compare offerings of differing sizes and determine which items are cheapest without needing a calculator.¹⁴⁵ Studies suggest that consumers use these labels to save money in their purchase choices. Even a basic application of unit pricing led to 1% savings.¹⁴⁶ When combined with other tools for comparison, such as an education campaign, information on unit price disclosures have led to 10% to 13% savings.¹⁴⁷

Another category aimed at improving the analysis of information focuses on the algorithms that increasingly direct people to their ultimate purchase. In one study with unusual access to internal company data, economists found that a subtle change to eBay’s algorithm saved consumers 5% to 15% by returning lower-priced search results first.¹⁴⁸ Yet search results are almost entirely unregulated, and companies have an incentive to increase the prices that consumers pay.¹⁴⁹ It follows that laws pushing online marketplaces toward more helpful search results could bring consumers considerable savings.

This discussion should not be read to imply that consumer price laws are straightforward. Disclosures require careful design and measurement of results to avoid waste or even counterproductive effects.¹⁵⁰ These complications are described in greater depth below. Note, however, that the importance of design underscores how many of the above interventions could be improved, providing even greater price reductions. For instance, the 5% Medicare savings resulted from text inserted into a letter that many people presumably did not read. The researchers observed that, had all Medicare patients followed the advice, the average savings would have been 31%.¹⁵¹ And while the Israeli statute produced results from mandating machine-readable disclosures, more active support for helpful digital intermediaries that would analyze all available prices for the consumer could create more powerful shopping tools, putting even greater price pressure on sellers.¹⁵² Thus, the empirical evidence suggests that price transparency laws can significantly lower prices in a variety of markets.

2. Removing Licensing Restrictions Can Lower Prices

Unlike price transparency and antitrust laws, addressing higher prices that result from governmental licensing requirements has a more straightforward legal solution: removal of the laws that require those licenses. The above studies estimating price increases suggest that the removal of inefficient occupational licensing laws, territorial restrictions for car dealerships, and zoning laws could significantly lower prices.¹⁵³ Indeed, some of that research goes beyond just estimating price increases by also modeling the effects of removing such laws.¹⁵⁴

More direct evidence also comes from studies of licensing laws that have already been improved. For instance, in jurisdictions that expanded the role of nurse practitioners and allowed them to provide medical services previously only administered by doctors (albeit still supervised in a doctor’s office), prices lowered an estimated 3% to 16%.¹⁵⁵ As another example, in 1983, Colorado lawmakers removed licensing requirements mandating that anyone offering funeral services graduate from a mortuary college, train for a year, and pass oral and written license examinations.¹⁵⁶ A comparison of the resulting prices in Colorado before and after the licensing removal found that the reforms lowered prices in Colorado by 15%.¹⁵⁷

The removal of licensing laws has mixed effects on labor markets, as discussed below. For purposes of inflation, however, improvements to widespread licensing laws offer an opportunity to lower prices substantially.¹⁵⁸

3. Antitrust Reforms Can Lower Prices

Unfortunately, there is limited evidence that speaks directly to the question of how antitrust reforms would work in the U.S. economy. A big part of the challenge is simply methodological. Changes to price transparency and licensing laws are more readily studied because they occur more frequently and offer researchers the ability to compare prices in a specific market before and after a statutory legal reform.¹⁵⁹ In contrast, new market-wide antitrust laws have been enacted less frequently. New policies have been implemented through ex-post law enforcement processes against individual firms, but it is difficult to measure the market-wide deterrence effects of such developments.¹⁶⁰ Consequently, there are simply fewer rigorous studies of antitrust law’s ability to lower prices.

Although it is debatable what level of confidence can be had based on the existing evidence, a few studies speak to this fundamental question of antitrust effectiveness. Research from decades ago found that in the months and years after the filing of a successful price-fixing antitrust complaint, antitrust actions for price-fixing or collusion lowered prices by several percentage points.¹⁶¹ If scholars are correct that most cartels go undetected,¹⁶² these empirical studies suggest that finding a way to prosecute those cartels could rapidly lower prices.¹⁶³ Of course, this raises the question of whether adequate legal authority exists or could be enacted—a topic returned to below in the discussion of administrability. But for now the point is simply that there is empirical support for tentatively concluding that a stronger regime for addressing price-fixing could provide help with inflation.

Antitrust enforcers’ ability to address industry concentration is less clear. Part of the problem is simply that the most powerful remedy—breaking up companies—is seldom applied in the United States, so there has been limited ability to study its price effects.¹⁶⁴ Moreover, many empirical studies of existing U.S. antitrust interventions tend not to quantify the price effects, presumably due to methodological difficulties.¹⁶⁵

The most methodologically convincing study comes from the Netherlands, where a new law forced some owners to divest gas stations chosen at random.¹⁶⁶ It found that when concentrated gas stations were broken up, prices decreased from 1.3% to 2.3%.¹⁶⁷ Those findings come with the caveat that they do not reflect a large-scale organizational breakup. Instead, the study measured the effects of the forced sale of existing gas stations whose day-to-day operations presumably could remain uninterrupted.¹⁶⁸ Although these findings are limited in terms of magnitude and market applicability, they provide some cautious support for the possibility of using divestitures in at least some contexts to lower prices.

Finally, a newer wave of research has begun to look at the strength of the overall competition policy of a country in order to determine the effects of those policies on markets.¹⁶⁹ In one study, the antitrust regimes of large economies were evaluated in terms of factors such as the ability to impose significant penalties for violations, the level of investigative authority, and the intensity of oversight applied by enforcers.¹⁷⁰ Although this metric has limits, the study found that when countries weaken competition policies, average profits increase.¹⁷¹ Another study estimated the impact of competition policy on market concentration.¹⁷² It concluded that removing barriers to entry and blocking mergers lowered concentration levels.¹⁷³ These findings speak to the potential impact of competition policy on prices because higher concentration levels are associated with higher markups.¹⁷⁴

These findings are complicated by the debate about whether higher profits and margins are good or bad. Again, profits can increase for pro-competitive reasons, such as greater innovation.¹⁷⁵ Or rising profits and margins can reflect increased market power and lower productivity. The potential for high profits also provides motivation to innovate and invest.

In sum, although antitrust reforms overall have proved more difficult to study directly than price transparency and licensing reforms, there is some limited empirical support for concluding that stronger antitrust interventions can reduce prices. Due to the debates about the benefits and drawbacks of concentration, the least controversial antitrust reforms would be those aimed at undetected price-fixing and algorithmic collusion. The variability of options not only within antitrust but also among all market improvement laws speaks to the importance of a framework for deciding among anti-inflation policy tools.

III. DESIGNING ANTI-INFLATION LAWS

The preceding discussion has shown the theoretical and empirical foundations for using market improvement laws to address inflation. The evidence suggests that consumers face difficulties finding the best deals and that in many markets well-designed market improvement laws can lower the prices paid at magnitudes that would offset a meaningful amount of inflation. This Part offers a framework for choosing among anti-inflation policies. The goal is to comprehensively compare underappreciated microeconomic options, such as market improvement laws, to those more macroeconomic options that tend to be the default choice. It then sketches in greater detail what it would mean to integrate market improvement laws during an inflationary period.

A. A Framework for Choosing Inflation Laws

Even after recognizing that market improvement laws have significant potential to lower prices, policymakers are faced with the task of deciding how to prioritize among the various anti-inflation laws. Yet in the rare academic discussions of how more microeconomic laws may address inflation, there is usually an absence of any framework for choosing among options.¹⁷⁶ The discussion above has indicated four key criteria that can be used to choose among policy options: direct magnitude, indirect structural support, administrability, and side effects. Analytic shifts in applying these criteria would help to better incorporate microeconomic laws into inflation.

1. Direct Magnitude

The direct magnitude refers to the percentage of reduction in inflation as an immediate consequence of the policy. At first glance, this is one metric on which market improvement laws come up short compared to macroeconomic tools such as interest rate hikes. In theory, the Federal Reserve could raise interest rates from its current level of roughly 2% to something dramatically higher, like 40%, to tame high levels of inflation.¹⁷⁷ Similarly, in a command-and-control economy, price controls can dictate the level of inflation and thereby, in theory, reduce fifty points of inflation or more.¹⁷⁸

In contrast, market improvement laws have built-in limits to their impact on prices because businesses can only lower prices so far before operating at a loss.¹⁷⁹ Additionally, there is great variability in the magnitude of price decreases from market improvement laws across industries,¹⁸⁰ making it difficult to know the precise magnitude achievable across the entire economy.

One caveat is in order when comparing magnitude. Any such analysis must consider practical institutional limits. For instance, interest rates can only be raised to certain levels before the costs (especially low growth and unemployment) become too high to push further. Consequently, the various criteria for anti-inflation laws influence one another. In this case, the criterion of direct magnitude interacts with negative side effects, which can limit the practical magnitude of an anti-inflation tool.

Nonetheless, putting other criteria aside for now, there is reason to think that the direct magnitude of market improvement laws has been underestimated. This underestimation illuminates how an anti-inflation framework should analyze magnitude. Relevant academic and policy conversations have focused on antitrust.¹⁸¹ Yet among the three major areas of market improvement laws, antitrust offers the most limited empirical support for concluding that there is a possibility of high magnitude.¹⁸² In aggregate, the market improvement laws discussed herein have a much larger potential total anti-inflation magnitude than antitrust alone.

The broader point here is that a siloed approach to considering microeconomic laws has weakened analyses of anti-inflation laws’ direct magnitude. With respect to market improvement laws, the analysis of antitrust law’s magnitude in isolation, without considering related areas of law, obscures the relevance of market failures to inflation. For a comprehensive estimate of the direct magnitude of anti-inflation policies, it will sometimes be necessary to combine various areas of law that are united by a common economic frame.

Moreover, academics and policymakers may have underappreciated market improvement laws’ direct magnitude even within some of the three areas of law discussed herein. Studies of market improvement laws are often scattered among various markets, such as gasoline, food, and cell phone plans.¹⁸³ These individual microeconomic studies do not immediately provide macroeconomic magnitudes. To conceptualize the magnitude of a specific type of reform, such as price transparency laws, observers must synthesize various micro-level empirical studies into a macro-level magnitude.

Thus, research silos for different areas of law and diverse markets must be overcome to obtain a more comprehensive sense of the potential direct magnitude of anti-inflation laws. Only then can policymakers and scholars form an accurate sense of whether market policies are worth being in the conversation about fighting inflation.

2. Indirect Structural Support

The direct magnitude analysis discussed above is not by itself sufficient to understand the full contributions that an anti-inflation policy has to offer. Some policies, like market improvement laws, have the potential to provide indirect support to other anti-inflation laws.¹⁸⁴ That complementary role must also be weighed.

As mentioned above, structural solutions to inflation (such as ending China’s COVID lockdown) may not work unless consumers have the capacity and motivation to effectively compare prices. Price transparency is thus crucial for helping ensure that structural solutions, like repairing the supply chain, swiftly impact prices paid. This complementary role in addressing inflation constitutes the second criteria in this Article’s framework: indirect structural support.

The indirect structural support provided by other anti-inflation tools is less clear. In theory, antitrust enforcement and licensing reforms should also indirectly help other interventions because competitive pressures would push companies to pass on any sudden supply-chain savings to customers. However, there is some limited evidence that oligopolies may be quicker than firms in more competitive industries to pass on later cost-savings to consumers.¹⁸⁵ If that research is correct, antitrust would provide less indirect structural support for anti-inflation than price transparency laws. Nor do price controls and interest rates offer such indirect support that make it more likely that direct solutions will work.

Consequently, the failure to consider the indirect ways that anti-inflation laws may operate can distort the design of the policy response. In particular, a failure to consider this criterion biases the choice away from price transparency laws. Another way of thinking about structural support is as contributing to a more comprehensive picture of the full magnitude of the policy response.

3. Administrability

Administrability refers to the feasibility of effectively implementing a policy. Anti-inflation policies would ideally not only lower prices, but do so reasonably rapidly and with some degree of confidence. At first glance, these considerations cast doubt on at least some types of market improvement laws, since many of those reforms come with the risk of failure—especially antitrust laws and poorly designed disclosure mandates.¹⁸⁶ Additionally, market improvement laws involve decisions by various regulators, judges, and attorneys general. The dispersed nature of that implementation creates administrability challenges. Economists studying inflation have assumed that antitrust reforms take years to affect prices.¹⁸⁷ Whether those perspectives are correct is subject to debate and will be returned to shortly, but it is necessary to recognize that the general perception has been that market improvement laws are low on administrability.

In contrast, policymakers are more likely to feel confident that raising interest rates will lower inflation because this tool has been used repeatedly for that purpose in the past.¹⁸⁸ It is also institutionally straightforward to implement—requiring a single administrative agency, the Federal Reserve, to make a single decision. Strictly enforcing price caps can also immediately lower the prices that consumers pay, although this is more institutionally complicated because it mostly requires the passage of legislation.¹⁸⁹

While these advantages to interest rates and price caps are real, they should not be exaggerated. The political response to interest rates and price controls adds unpredictability, as backlash may ensue from their potentially devastating economic side effects. That backlash may get in the way of interest rate reductions’ ability to fully address inflation.

The direct magnitude of inflation reduced by interest rate hikes is also difficult to know in advance due to macroeconomic conditions that differ from those in previous inflationary periods.¹⁹⁰ Additionally, it typically takes a year before interest rates meaningfully hit inflation, with peak impact occurring at close to two years.¹⁹¹ Price controls can have a more immediate impact on prices, but they are extremely difficult to administer beyond the short term, making their sustained effectiveness uncertain.¹⁹² Thus, the Federal Reserve’s raising of interest rates comes with considerable administrability challenges.

Moreover, differences in administrability are difficult to compare rigorously. Some market improvement laws have been found to lower prices considerably in specific markets.¹⁹³ They can also do so on a relatively short timeline, with one field experiment finding that consumer education campaigns lowered prices paid by about 17% to 18% within six weeks.¹⁹⁴ In the aforementioned study of the Israeli statute that required price transparency for grocery stores, the researchers found that prices had begun to decline within eight months, and the full price effects of 4% to 5% happened within two years.¹⁹⁵ For a full sense of the timeline for new legislation, it is necessary to also add the time needed to write and pass a bill, although that can happen rapidly if lawmakers feel sufficient pressure. Other avenues offer a shorter timeline for an impact on consumer prices, such as administrative agencies or attorneys general enforcing current laws more aggressively.¹⁹⁶

Antitrust faces more significant administrability challenges than price transparency laws. Even assuming that industry concentration anticompetitively contributes to high prices, it is not clear what can be done about that on a short timeframe. Breaking up large companies would be the most direct response, but breakups take years and cost billions of dollars to implement.¹⁹⁷ As a result, even a successful breakup could increase prices in the short term and may require years to lower prices. Moreover, antitrust enforcers can only prosecute a small number of cases at any time and must act against individual firms, meaning that it could take decades to go through all the major industries and bring cases against individual companies.¹⁹⁸ If economists are right that some portion of rising markups is due to arguably pro-competitive factors, the identification of targets comes with the additional risk of possibly undermining consumers’ interests. Discouraging cartels and collusion is not without its challenges, but it would not come with the same level of concerns about deterring productive behavior.¹⁹⁹ Importantly, price-fixing enforcement could produce faster price reductions within a few months of the announcement of initiating the case.²⁰⁰

Perhaps the most straightforward market improvement reform in terms of design is the removal of existing licensing laws. Whatever law that was passed can simply be repealed. However, even repeals ideally would be implemented in a thoughtful manner to preserve any valuable consumer protections. Because most licensing laws are at the state or local level, there is a complicated legislative and judicial path to reforming such laws in a systematic manner.²⁰¹ Legal avenues for challenging governmental licensing regimes may also exist, though they are uncertain.²⁰²

Overall, the criterion of administrability disfavors market improvement laws as a tool for fighting inflation to varying degrees depending on the sub-category. But it is important not to exaggerate the administrability challenges of market improvement laws compared to interest rates and price caps. Once a broader view is taken on administrability, interest rate increases also entail institutional difficulties. It is also not clear why administrability should receive greater weight than other criteria, like side effects.

4. Side Effects

Before selecting an anti-inflation policy, its side effects must be closely considered. This criterion has traditionally focused only on the economic sacrifices that must be made to control inflation.²⁰³ That focus makes more sense in a world in which markets are as close to perfection as possible, since every major anti-inflation intervention would then be expected to distort markets away from the current level of near perfection. However, as detailed above, assumptions about markets being as efficient as possible are disconnected from the evidence of market failure across the economy. Moreover, the consequence of overlooking the possibility of beneficial side effects is to disfavor market improvement laws because beneficial side effects is the strongest reason to favor market improvement laws over alternatives.

As discussed above, significant interest rate hikes raise the risks of a recession and increased unemployment. Price caps come with the risk of harming efficiency and discouraging innovation.²⁰⁴ In contrast, transparency laws, the removal of licensing restrictions, and antitrust move the economy toward greater efficiency, growth, and innovation.²⁰⁵

This is not to say that market improvement laws are without negative side effects. Price transparency laws impose compliance costs on businesses. The impact of such costs must always be considered and mitigated as much as possible. However, all regulations inevitably have costs. Therefore, the existence of costs alone cannot determine whether a regulation is warranted. Those costs must be weighed against the benefits. Supplying customers with helpful information is a standard component of transacting that has long been expected in markets.²⁰⁶ It is thus consistent with basic market functions to expect actors to inform the parties with whom they transact. Since inflation is economically destructive, and given the efficiency gains of consumers making more informed decisions, the costs of complying with regulations should not defeat a proposal for effective price transparency laws that would correct significant market failures.

Beyond the costs of complying with any given legal rule, there is also a risk of designing the policy intervention in a way that unintentionally harms the market. In particular, blocking a beneficial merger or breaking up an efficient company could lead to higher prices. This is where the existing research on what has worked in the past can help to prioritize and inform anti-inflation laws.²⁰⁷

The removal of licensing laws comes with likely more controversial side effects than price transparency and antitrust laws. One of the risks of removing these laws is less consumer protection. To mitigate this, the reforms could replace licensing with optional certification. Consumers could then choose to pay more for the certified services if they would like, such as for hair salons or funeral services. Low-income consumers who otherwise might not be able to afford services would then still have the option of lower price points. Moreover, those lower-priced offerings would put some price pressure on the certified services.²⁰⁸ Additionally, Yelp and other rating websites can mitigate the risk that removing licensing leads to worse quality because they can provide some reputational accountability.²⁰⁹ Finally, it is worth noting that in many contexts, the consumer protection implications of removing licensing will not be significant. For example, seven years after the state legislature had delicensed funeral services, the Colorado Department of Regulatory Agencies investigated the impact on customers and found that the “[c]laims that the public in Colorado had suffered or might suffer significant detriment due to a lack of trained mortuary science practitioners . . . were unsupported.”²¹⁰

The removal of occupational licensing also has a complex mix of employment results. Removal should normally decrease wages because more people could enter the occupation, while also increasing the number of jobs, especially for low-income and immigrant workers who might not be able to access or afford the expensive training often required to satisfy licensing requirements.²¹¹

In summary, the removal of occupational licensing would improve market efficiency and expand employment, but it could lower some consumer protection and wages. The price savings to consumers, increase in aggregate wealth, and job creation make these side effects overall positive. Consequently, the removal of licensing has more appealing economic side effects than raising interest rates, which has overwhelmingly negative side effects.²¹² But occupational licensing improvements offer more mixed side effects than antitrust and price transparency improvements, which bring overwhelmingly positive side effects. More broadly, the anti-inflation analysis should comprehensively weigh the full positive and negative side effects in choosing anti-inflation policies.

* * *

Given that no policy is superior with respect to all four criteria, the task becomes how to balance the criteria. Two considerations will prove helpful. First, it is important not to let administrability and direct magnitude alone outweigh all other criteria. Yet that appears to be the traditional approach to inflation. To ignore indirect structural support and side effects risks missing more subtle impacts of policies on inflation and the economy.

Second, even if policymakers were to decide that administrability and magnitude were the most important criteria, it would be a mistake to discard other policy options. An anti-inflation toolkit can deploy multiple tools. That is particularly true because interest rates do not require legislative involvement and can be adjusted rapidly. Thus, legislatures and regulators can work to design and implement price transparency, antitrust, and licensing solutions while the Federal Reserve adjusts interest rates. Any portion of prices driven down by market improvement laws could later prevent some portion of interest rate increases and their side harms, while also making it more likely that some of the main structural solutions to inflation actually work.

In short, once the criteria of direct magnitude, indirect structural support, administrability, and side effects are all fully considered, policymakers would be hard-pressed to find a more promising area than market improvement laws, especially price transparency, to mobilize against inflation. Table 1 provides a summary of how these criteria might apply to various policies to offer a working hypothesis and illustrate this framework. The most important conceptual takeaway is that anti-inflation analyses have historically paid too little attention to the possibility that there are options that bring positive side effects. Regardless of the magnitude, policymakers should do as much as possible with laws offering side benefits to minimize the need to use those with side costs.

Table 1. Level of Attractiveness for Fighting Inflation
	Direct Magnitude	Structural Support	Admin-istrability	Side Effects
Interest rates	High	Low	High-Medium	Low
Price Controls	High	Low	Low	Low
Antitrust: Breakups	Low	Medium-Low	Low	High
Antitrust: Price-fixing	Medium	Medium-Low	Medium	High
Occupational Licensing	Medium	Low	Medium	High-Medium
Price Transparency	Medium	High-Medium	Medium	High
Notes: This table is meant to summarize parts of the discussion from this section and to illustrate how the framework might be applied, rather than to suggest a definitive account. Of course, more sustained analysis of each of these determinations would be warranted, and judgment calls in such an exercise are inevitable.

B. Integrating Market Improvement Laws into Inflation Policy

Recognizing that an area of law should become a higher priority in an inflationary period is an important conceptual step. However, deploying nontraditional anti-inflation tools poses a challenge of designing the institutional integration of market improvement laws into inflation policymaking. There are essentially two ways to go about this: creating new authority and changing the way existing authority is exercised. The most powerful method would be to create new authority. Most importantly, those developing responses to inflation—especially lawmakers—should create new legal rules. However, even without any new rules, a variety of existing actors can still have a potentially meaningful impact by changing how they exercise existing authority. The discussion that follows focuses on the subset of market laws that seem most immediately promising—price transparency laws—but situates such reforms within a more comprehensive market improvement strategy.

1. Creating New Laws

The review of the evidence above suggests that new legal rules can push prices down. Accordingly, a straightforward way to integrate market improvement laws into inflation policy would be to create legal rules that would help consumers to obtain and analyze pricing information, remove unhelpful licensing, and strengthen antitrust. It bears emphasis that state legislatures have passed many price transparency, antitrust, and licensing laws.²¹³ Thus, meaningful legislative solutions need not wait for Congress.

In terms of institutional design, it would be suboptimal for lawmakers to take the lead on writing all such legal rules. Given legislatures’ limited expertise, as well as the general challenges of passing laws at the federal level and in many states, it would be preferable for an administrative agency to be empowered to study and enact market correction rules. The FTC is the logical choice among existing agencies. It has a Bureau of Economics that can research and study the price effects, a Bureau of Consumer Protection that understands consumer laws, and a Bureau of Competition that enforces antitrust.²¹⁴ Yet the FTC has limited rulemaking authority related to market improvement laws.²¹⁵

Therefore, Congress should empower the FTC and other administrative agencies to write new market correction laws, even if only on a temporary basis until inflation subsides.²¹⁶ The highest-priority legislation, and probably the most politically viable, would be something like a Price Transparency Act. The act would focus on giving consumers—and the digital intermediaries that help them—the tools they need to easily locate the best deals. Such an act has potentially widespread intellectual appeal because it leverages what is known as “regulation for conservatives,” or behavioral interventions that would still allow businesses and consumers to do what they want, rather than prohibiting certain practices.²¹⁷ Administrative agencies, such as the Consumer Financial Protection Bureau and the FTC, would then ideally study and write any new rules not specifically outlined in the statute.

To decide which of many possible market improvement laws to pursue, policymakers can apply the criteria of direct magnitude, indirect structural support, administrability, and side effects. They should prioritize those laws that have the strongest empirical support based on legislation enacted in other countries or in U.S. states. They can also ask what interventions have worked in some contexts, such as mandating price disclosures in grocery stores, that may be worth trying in other contexts, like auto dealerships.

This prioritization analysis involves not just asking what types of law are most appealing, but also which markets. In real terms, a dollar saved in gas purchases is no different from a dollar saved in dry cleaning, but they are potentially different in terms of inflation. To elaborate, consider how the price of gasoline per gallon has a disproportionate impact on people’s perceptions of inflation.²¹⁸ That is the case because gasoline prices are visible on billboards, regularly paid by much of the population, and frequently reported in the media.²¹⁹ In reality, gasoline price-changes overall contribute little to inflation because they are a small part of overall consumer spending.²²⁰ However, because expectations of inflation can lead to actual inflation, pushing down gasoline prices can disproportionately help with lessening a direct cause of inflation. Consequently, if gas prices are elevated in ways that price transparency laws might address, devoting more resources to transparency rules for gas prices would disproportionately help manage perceptions of inflation when compared with the impacts of devoting similar resources to industries that have a weaker psychological connection to inflation. Other products with outsized influence on the perception of inflation, albeit to a lesser extent than gasoline, are food and clothing.²²¹ Targeting these industries would be one way to implement a policy strategically designed to address the psychological side of inflation.

Space constraints do not allow for identifying each of the many specific legal rules that might be enacted, whether individually or under a broad Price Transparency Act. But the review of the literature above offers many promising concrete examples. Those include the kind of price transparency laws that have been demonstrated to work elsewhere, such as the Israeli grocery store statute aimed at digital intermediaries and the Italian Parliament’s mandate of gas price billboards.²²²

Lawmakers should not, however, limit themselves to those laws that have already been implemented somewhere else. They can also look to promising proposals in each area of market improvement laws. In the past, legal scholars have proposed the types of laws that legislatures subsequently implemented to lower prices. For instance, before the Israeli legislature passed the grocery store disclosure law that ultimately lowered prices, Oren Bar-Gill had in other markets proposed “smart disclosures” that consumers could share with third-party intermediaries.²²³

With the right political will, more aggressive reform would be warranted. For instance, it would be worthwhile to prohibit some specific manipulative practices, such as teaser rates for credit cards, as proposed by Ryan Bubb and Bar-Gill.²²⁴ Legislatures could also roll back the more unreasonable licensing regimes, as proposed by David Hyman and Shirley Svorny.²²⁵

Although antitrust may be less appealing as an anti-inflation tool, scholars have identified numerous antitrust reforms that are worth considering. Since price-fixing is one of the more attractive areas in terms of the inflation criteria, new legislation might target such practices, particularly those resulting from algorithmic coordination. One noteworthy proposal is Michal Gal’s idea of fighting companies’ algorithms with algorithms that would alert regulators to violations or help consumers exert pricing pressure on sellers.²²⁶ D. Daniel Sokol has proposed leniency programs and corporate monitors for addressing cartels, while Christopher Leslie sees the legal standard of proof as currently too difficult.²²⁷ A number of other proposals have been made, including Einer Elhauge’s call for cracking down on potentially anticompetitive ownership structures, such as the same mutual funds owning large portions of competing firms.²²⁸ These examples are meant to sketch the landscape of reforms to consider, rather than to serve as endorsements of particular proposals.

Of course, the weaker the evidence supporting a proposal, the lower priority that proposal is for policymakers. Particularly with many antitrust proposals, the strongest support lies in theory, rather than empirics. For these types of proposals, it would be particularly important to study their impact after they are implemented, perhaps with a sunset provision requiring the new rule to be reexamined empirically and reauthorized based on that evidence after a certain number of years. Although there will often be uncertainty due to limits on what is known, in many of these cases, the obstacle seems to be politics rather than knowledge.²²⁹

2. Exercising Existing Authority More Aggressively

Many legal actors could shift their priorities, or change their legal decisions, in ways that have the potential to bring down prices. These actors include attorneys general, administrative agencies, and judges.

Consumer law scholars have shown how a variety of regulations in all fifty states, and at the federal level, could discourage the kinds of pricing obfuscation practices outlined above. One move would be for attorneys general, private plaintiffs, and the FTC to more aggressively exercise the Unfair or Deceptive Acts and Practices (“UDAP”) authority that exists at the state and federal level.²³⁰ I and others have argued that UDAP authority would likely reach the kinds of behavioral pricing practices outlined above.²³¹ Since UDAP authority comes with doctrinal uncertainty, another possibility lies in simply devoting more energy to enforcing laws that clearly prohibit specific pricing practices. For instance, David Friedman has documented how retailers systematically fabricate a high price and then claim to discount it in order to make it look like a bargain.²³² They do this despite the fact that such practices are illegal.²³³ Attorneys general, administrative agencies, and sometimes private plaintiff-side attorneys could simply devote greater attention to an array of existing laws that promote price transparency.

Judges and enforcers also have some discretion to expand existing antitrust laws. Some existing proposals would directly target practices that have a well-documented and significant impact on high prices. As one example, to address pharmaceutical companies’ tactic of paying to delay competitive, generic entries, Scott Hemphill argued that such agreements should be “accorded a presumption of illegality as unreasonable restraints of trade.”²³⁴ Judges face expertise limits in determining which laws are worth expanding for inflation-fighting purposes, but in most of these instances, judges would need only devote more attention and resources to determining the microeconomic cases that would lower prices while increasing consumer welfare.

Other antitrust proposals would target anticompetitive behavior more broadly. Fiona Scott Morton and Jonathan Baker argue that online platforms violate antitrust laws when their contracts favor certain partners.²³⁵ Tim Wu and Hemphill have called for judges to shift their thinking on firms’ “parallel exclusion” tactics, such as when Visa and Mastercard adopted rules that served to block American Express from dealing with banks.²³⁶ Additionally, Christopher Leslie has shown that “despite the fact that direct evidence of collusion is rarely available, federal judges have made it harder to prove collusion . . . by effectively requiring direct evidence.”²³⁷

As discussed above, more structural interventions, such as breaking up large firms, may not produce price results fast enough to warrant high priority. But if antitrust enforcers credibly signal that they are willing to break up firms that engage in anticompetitive pricing, or even begin to take such actions, it is possible that the threat could immediately exert downward pressure on firms fearing they will be targeted for such enforcement actions.²³⁸ Additionally, whereas other interventions would have more immediate price effects, a few targeted breakups or other significant antitrust remedies in major industries might bring price relief years down the line, after faster market improvement laws had reached their limits. Breakups could thereby be part of a more sustained anti-inflation strategy based on market improvements.

To be clear, legislation would be more likely to have an immediate, sustained, and economy-wide impact on collusion and other problematic behavior than solely increased enforcement of existing authority. But progress is also possible if key legal actors, especially judges, simply update their outdated decisions in accordance with market developments and advances in economic research.²³⁹

It is also worth noting that in the absence of any legislative action at the state or federal level, some limited new legal rules, or at least policies, are still possible through administrative agencies. To some extent this process is already underway, with the National Economic Council and the White House pushing seventeen agencies administering some form of competition policy to exercise their full authority in matters related to pricing.²⁴⁰ For example, the Federal Communications Commission voted to prohibit “sweetheart deals,” in which landlords receive payments for allowing only a single internet provider to serve a building, a practice that had significantly driven up prices for tenants.²⁴¹ Therefore, a diverse array of legal actors currently have at their fingertips the power to chip away at inflation while improving markets.

3. Encouraging Action

Legal design tools could be deployed to increase the chances that diverse legal actors overcome institutional inertia and political economy obstacles. This section briefly explores two such tools: inflation impact statements and sunset provisions.

Inflation Impact Statements. Since the contributors to prices are so dispersed, and their additions to inflation are often opaque, many of the actors who can individually play a part in addressing inflation may not feel sufficient democratic pressure to do so. Or they may fail to undertake the analysis necessary to see their potential impact on inflation because fighting inflation has not previously been an obvious component of their job. A common tool for promoting awareness and providing accountability in such situations is the impact statement.

Impact statements are currently required, among other contexts, of legislation that might have a detrimental impact on the environment.²⁴² The idea in environmental law is to compel lawmakers or administrative agencies to consider the environmental impact of any new legal rules.²⁴³ In 1974, President Ford issued an executive order requiring administrative agencies to study and disclose the effects that their rules might have on inflation.²⁴⁴ It is worth considering impact statements again today to pressure lawmakers and administrative agencies to pay greater attention to how their actions may subtly or unexpectedly influence inflation.

Inflation impact statements might also incentivize action at the state level. The federal government could publish state-level inflation reports that would summarize inflation dynamics in each state. The Bureau of Labor already collects pricing data from multiple sources in every state as part of its inflation reports and publishes some regional rates.²⁴⁵ When combined with a study of the effects of specific policies, such reports could put pressure on state-level legislators, attorneys general, and agency leaders best positioned to remove unnecessary occupational licensing laws and encourage the enforcement, or enactment, of price transparency laws. The goal of the reports would be to remove any lack of pressure state actors may feel due to their own or voters’ inadequate knowledge of how such microeconomic laws can affect inflation. Inflation impact statements could thus foster greater integration of law and macroeconomics for the benefit of society.

Sunset Inflation Laws. If lawmakers face political resistance to passing market improvement legislation, sunset provisions may help.²⁴⁶ Sunset provisions ensure that laws are revoked after a certain period of time—at which point, metaphorically, the sun sets on the law. These provisions can be designed in numerous ways, but in the case of inflation-oriented sunset laws, one sensible approach could be to state in the statute that the legal rules will end once inflation reaches a moderate level for a certain duration, such as under 3% for two years. Another approach would be to simply set a certain number of years, such as ten years, after which the laws are no longer valid.

A better design would be to require an empirical assessment of the law’s effects at the end of some period of time. After a certain number of years, the new policy would be studied to determine its impact on inflation, burden on businesses, and broader influence on the economy. If it is found that the policy is ineffective, perhaps because it fails to lower prices, it would be revoked.

Sunset provisions have previously accompanied contentious price-reducing legislation. When Colorado legislators removed funeral services licensing restrictions in 1983, they were met with warnings of “significant threats to the public health, safety and welfare.”²⁴⁷ The legislature responded to those concerns by including a sunset provision in the statute, requiring a state agency to investigate the impact of the statute after several years of operation to determine whether to continue the new policy.²⁴⁸

Ideally, the decisions to pass and keep market improvement laws would be made based on informed studies of the laws’ impacts on markets. And if those laws are overall beneficial to society in the long term regardless of inflation levels, as would be expected from market improvement laws, then those laws should remain. However, if political compromise is necessary, then it would be preferable for market improvement laws to end with inflation rather than to not have them at all when the stakes are so high.

CONCLUSION: INFLATION AS OPPORTUNITY

Once-in-a-generation threats such as alarming inflation require a pluralistic policy response involving all parts of the government—the executive, judicial, and legislative branches at both the state and federal levels. Diverse areas of law should be considered to resolve the problem in a way that is as economically productive as possible, rather than relying on the Federal Reserve to raise interest rates out of institutional inertia. Yet the dominant analytic framework for anti-inflation law is currently an obstacle to designing such a comprehensive response.

By not connecting law and microeconomics to the macroeconomic issue of inflation, by not considering the evidence of widespread market failures, and by failing to fully consider how artificial intelligence tools interact with pricing, scholarship has contributed to an underappreciation of the potential impact of market improvement laws on price. The literature also overlooks the ways that price transparency laws can both lower prices in the short term and later provide secondary support for direct structural solutions by helping consumers find the best prices available in the marketplace once supply chains are no longer decimated. These analytic shortcomings have contributed to an inflation policy that erodes economic health and risks driving the economy toward a recession.

Fortunately, a consensus in favor of market improvement laws may be possible. The potential benefits of market improvement laws to society are undeniable and embraced across much of the political spectrum. One reason lawmakers have not always done everything they could to advance markets is that consumers are a dispersed group when compared with the concentrated interests of businesses. That political economy means sensible market improvement laws are not always passed or vigorously enforced during normal times. Instead, throughout history, the political barriers to consumer reforms have usually been overcome by shocks such as the 2008 financial crisis.²⁴⁹ Earlier periods of high inflation were no exception, driving lawmakers to increase antitrust penalties in 1974 and enact other antitrust reforms.²⁵⁰ Although the political process has since become more polarized, other bipartisan efforts are underway in a number of areas, including gun control, privacy, and antitrust, all in response to extreme concerns and events.²⁵¹ Consequently, with the threat of a deeper recession looming, it is not unrealistic to imagine inflation providing the necessary motivation to overcome the political failures that otherwise prevent beneficial market legislation.²⁵²

However, policymakers should not need the threat of a recession. A more robust analytic framework for selecting anti-inflation laws would ideally push key legal actors to start with those laws that bring beneficial side effects. Indeed, since inflation tends to take years to address, different market improvement laws can be pursued simultaneously, such as using price transparency laws to help inflation within a year or two while structural antitrust interventions and occupational licensing reforms would reach prices in subsequent years. Although interest rate hikes would need to be used in parallel or shortly thereafter, those hikes can be smaller or reversed more quickly because market improvements will be simultaneously doing some of the inflation-reducing work in the background.

Indeed, even if market improvement laws fail to play a meaningful role in reducing inflation, such reforms would still prove societally beneficial. It is independently important to reverse the alarming trend of businesses in recent decades becoming more skilled at charging prices higher than justified by their costs. Investing in improving markets is particularly important in the face of evidence of a looming recession, since stronger markets can help lessen the downturn’s severity and boost the ensuing economic recovery. Thus, inflation could provide the keys to unlocking valuable legal reforms that would significantly increase total wealth in the long run. Paradoxically, in the depths of inflation may lie an uplifting economic opportunity.

96 S. Cal. L. Rev. 825

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Rory Van Loo*

* Professor of Law, Boston University; Affiliated Fellow, Yale Law School Information Society Project. I am indebted to Ian Ayres, Christine Desan, Louis Kaplow, Saul Levmore, Josh Macey, Adriana Robertson, David Walker, Kathy Zeiler, and to participants in the Law and Macro workshop at Wharton Business School and the Cambridge-USC Virtual Antitrust Workshop for valuable input. For formative early conversations and feedback, I am particularly grateful to Yair Listokin. Joseph Brav, Allyson Brennan, Maria Cosma, Tess Cushing, Heather Flokos, Keenan Hunt-Stone, Nicholas Massoni, Jane Murphy, and Sam Norum contributed excellent research.

Delegating War Powers

February 2024February 2024Michael D. Ramsey* & Matthew C. Waxman†

Academic scholarship and political commentary endlessly debate the President’s independent constitutional power to start wars. And yet, every major U.S. war in the last sixty years was fought pursuant to war-initiation power that Congress gave to the President in the form of authorizations for the use of military force. As a practical matter, the central constitutional question of modern war initiation is not the President’s independent war power; it is Congress’s ability to delegate its war power to the President.

It was not until quite late in American history that the practice of war power delegation became well accepted as a domestic law basis for starting wars. This Article examines the development of war power delegations from the founding era to the present to identify when and how war power delegations became a broadly accepted practice. As this Article shows, the history of war power delegation does not provide strong support for either of two common but opposite positions: that war power, as a branch of foreign affairs powers, is special in ways that make it exceptionally delegable; or that it is special in ways that make it uniquely nondelegable. More broadly, that record counsels against treating “foreign affairs delegations” as a single category, and it reveals that constitutional questions of how Congress exercises war power are as significant as whether it does.

INTRODUCTION: WAR POWER AND THE NEW NONDELEGATION DEBATES

Academic scholarship and political commentary endlessly debate the President’s independent constitutional power to start wars or launch military interventions.¹ And yet, every major U.S. war in the last 60 years—Vietnam, the Persian Gulf War, Afghanistan, and the 2003 Iraq War—was fought pursuant to war-initiation power that Congress gave to the President in the form of authorizations for the use of military force.²

Congress’s war power—and by that term, or alternatively “war-initiation power,” we mean throughout this Article specifically the power to commence war, as distinct from power to wage it³—is generally understood to arise from Article I, Section 8’s power “To declare War.”⁴ But none of the congressional war authorizations of the past sixty years was in any sense a declaration of war. None had the effect of initiating, or directing the initiation, of military conflict. Instead, they were broad delegations to the President of the power to decide when and whether to initiate hostilities. In each case the President did use force (and it was apparent beforehand that he likely would, at least to some extent), but Congress left that decision to the President.⁵ Thus, as a practical matter, the central constitutional question of modern war initiation is not the extent of the President’s independent war power; it is the extent of Congress’s ability to delegate its war power to the President.

Until very recently, that latter question seemed easy—so easy that it was rarely asked. Under the Supreme Court’s modern nondelegation doctrine, Congress can, for the most part, delegate power to the President if it includes an “intelligible principle” by which the delegated power would be exercised—and this principle presents an exceptionally low bar, reviewed by courts with a high degree of deference.⁶ So while Congress likely could not delegate to the President discretion to start wars anywhere for any reason, delegations limited to particular places or particular threats (even stated broadly) would easily pass the test.

The conventional permissive nondelegation doctrine has, however, been called sharply into question by academic commentators⁷ and, more importantly, by the Supreme Court. In particular, Justice Gorsuch’s 2019 dissent in Gundy v. United States, joined by Chief Justice Roberts and Justice Thomas, argued for a new, more restrictive approach to the doctrine.⁸ In a separate opinion, Justice Alito signaled willingness to revisit the doctrine in an appropriate case,⁹ and two Justices added since Gundy—Justices Kavanaugh and Barrett—may have sympathy for the project as well.¹⁰ In 2022, the Court rejected the Environmental Protection Agency’s purported authority to regulate carbon emissions, reasoning that extra scrutiny and strict statutory interpretive rules apply to claims that Congress delegated to executive agencies power over “major” public policy questions.¹¹ Justice Gorsuch, joined by Justice Alito, wrote separately to emphasize the foundational constitutional importance of keeping major legislative decision-making in Congress.¹² One senses that a substantial revision of the nondelegation doctrine may be impending, thus provoking new scholarly attention to—among other things—the historical practice of delegation.¹³

War powers have not yet been a focus of this renewed nondelegation debate—but they should be. That is especially so because when the issue comes up, those who consider it are often pulled in one of two opposing directions.

One view sees war-initiation power as special in ways that make it unusually—maybe even uniquely—non-delegable.¹⁴ In this view, there is something about going to war, including the stakes or the institutional advantages and proclivities of the different branches, that constitutionally requires Congress to retain ultimate control. For Congress to yield substantial discretion over such a monumental decision to the President violates a key design feature of the Constitution.

A contrary and more common view (at least in the modern era) sees war-initiation power as special in ways that make it unusually delegable. Some justices and commentators have suggested that a more stringent nondelegation doctrine, even if revived in domestic matters, would not apply to foreign affairs.¹⁵ And, indeed, at the height of its nondelegation jurisprudence in the 1930s, the Court in United States v. Curtiss-Wright Export Co.¹⁶ indicated that the doctrine generally applies less strictly in foreign affairs than in domestic matters. Given that war powers are (again, at least in the modern era) a quintessential foreign affairs matter, and given that the President has some independent military powers, this view treats war powers as especially delegable.

Neither of these opposing views has been accompanied by sustained examination of historical practice. Such examination is important not just for history’s sake but because historical interpretive gloss often plays an important role in constitutional separation of powers law¹⁷ and because, in addition to the rising originalist orientation of the Supreme Court, the political branches often invoke originalism to support their respective positions on war powers.

This Article examines the development of war power delegation from the founding era to the present to identify when and how war power delegations became a broadly accepted practice. Ultimately, we argue that the historical record does not provide strong support for either of the two polar views described above: that war-initiation power is exceptionally delegable, or that it is uniquely nondelegable. Throughout much of American history, both political branches sometimes treated war initiation as constitutionally distinct, but not so consistently to alone justify either of those positions. We then explore what that history suggests about both constitutional war power and foreign affairs delegations more generally.

We show first that, contrary to common assumptions, early American history offers little support for broad war-initiation delegation. If anything, the historical record reveals that such delegations were rare and narrow, and sometimes accompanied by strong expressions of concern. In that way, this Article contributes directly to the current debate about nondelegation originalism, pointing to the ways in which war power in particular was understood to operate. We then go on to show that even as war power delegations became more widely used in the nineteenth and especially the twentieth centuries, eventually becoming an accepted practice during the Cold War, constitutional objections to war power delegations have had remarkable staying power. Even if now a minority view, they resurface again and again, especially at moments of major controversy about the role of military force in American foreign policy.

We do not contend that the historical record alone yields a clear doctrinal answer to whether and to what extent the war power is delegable—and, to reiterate, by that we mean the power to commence war as distinct from powers over how to wage it.¹⁸ A comprehensive doctrinal analysis would look at other factors, including functional arguments.

Nevertheless, our analysis of the historical record yields at least four implications for thinking about law in this area. First, this Article casts doubt on efforts to separate a category of “foreign affairs delegation” from resurgent controversies about the nondelegation doctrine in general, because it shows that foreign affairs delegation is not a single, coherent category. Those who want to breathe new life into the nondelegation doctrine, often on originalist grounds, sometimes carve out foreign affairs for special treatment as an area in which broad delegation of executive policy discretion seems especially appropriate. This Article, however, draws attention to the ways in which war-initiation power has historically been viewed as distinct from some other foreign affairs delegations. Contrary to the tendency of some constitutional critics of delegation in general to see Congress’s war power as an area in which delegation is especially appropriate, this Article spotlights arguments as to why war power delegation has sometimes been viewed as uniquely problematic. Among other things, this account complicates efforts by some jurists and commentators to pursue on originalist grounds a restrictive domestic nondelegation doctrine while preserving broad delegations as to war and foreign affairs.

Second, this Article shows that the contemporary emphasis in constitutional debates on whether Congress authorizes war or force misses the historical emphasis on how Congress does so. The stakes involved in the latter are immense, too. Any reform project aimed at restoring Congress’s “original” war powers also needs to grapple with constitutional limits to their delegation.

Third, the periodic reemergence of war power nondelegation objections illustrates how constitutional arguments have always been a major part of policy debates over U.S. military power. A defining feature of American constitutional war powers is the extent to which, even centuries after the founding, many basic legal questions remain contested, and the extent to which partisans in strategic debates over the use of military force wield constitutional arguments for political effect. This point is worth highlighting at this moment because U.S. overseas military commitments face intense resistance from both the right and the left. The history in this Article suggests that we will likely see an uptick in war power nondelegation arguments again as a tool of resistance to military adventurism—and at a time when nondelegation doctrine generally seems to be in some flux.

And, fourth, this Article shows the many ways in which war power delegations have been used or proposed to deal with a wide array of novel strategic challenges. One obvious function of war power delegation is to manage complexity, by giving the President leeway to respond quickly and flexibly to crises. This fits with standard arguments for delegation in general. The story of war power delegation is more intricate. This tool also served as a device for handling various, specific challenges—including dilemmas that were virtually unimaginable to the founders—that arose over time in the context of overseas policing, collective security, and nuclear deterrence.

The Article proceeds as follows. Part I considers what, if anything, the Constitution’s drafting and ratifying history can contribute to debates about war power delegation. Part II examines historical war power practice up to 1860 under four categories of conflicts and their legal bases: (1) formally named “wars”; (2) the “Quasi-War” with France in 1798–1800; (3) lesser-known nineteenth-century episodes in which war power delegation was considered or debated but no actual military conflict ensued; and (4) other use-of-force delegations relating to frontier conflicts with Native American tribes, piracy, and insurrections. Part III looks at delegations from the Civil War to the Second World War, a period in which the nation’s emergence as a global power was, perhaps surprisingly, not accompanied by any material delegation of war-initiation power. Part IV examines practices beginning with the Cold War, in which we find the most decisive shift to a regime of broad delegation of war power. Part V discusses the implications of this history for war powers doctrine, foreign affairs nondelegation doctrine, and war powers reform.

I. WAR POWER DELEGATION AT THE FOUNDING

A vast scholarly literature has explored the extent to which the Constitution’s original design vested the war power exclusively in Congress.¹⁹ Article I gave Congress the power to declare war, and Article II vested executive power in the President and made the President commander in chief. Debate rages today about whether, beyond giving the President wide powers to control the conduct of war, those Article II powers also include authority to initiate military hostilities. We do not relitigate that issue here. For present purposes, we assume that the original design gave Congress some exclusive war power—a proposition not widely contested—and ask instead what founding-era debates suggest about Congress’s ability to delegate that exclusive power (whatever its extent may have been) to the President.

We find that the founding-era debates say surprisingly little on the matter. Neither the framers nor the ratifiers appear to have engaged war power delegation directly. The war power did not play a large role in founding-era debates, and contemporaneous commentary on that power lacked detail about how it would be exercised. Further, discussions of delegation more broadly (which themselves were rare) do not have obvious implications for war power delegations. The founding-era debates and background understandings do not clearly establish congressional authority to delegate war powers. If anything, they indicate strong beliefs among at least some key framers that important war power decisions should not lie with the President, raising doubt whether those framers would have thought it permissible for Congress to broadly hand them off to the President by statute.

A. War Initiation in the Convention and Ratification Debates

The records of the 1787 Philadelphia Convention indicate that delegates discussed war powers on two material occasions. Although both exchanges convey a strong sense that Congress, not the President, should hold war-initiation power, neither considers the question of war power delegation directly or definitively.

On May 29, Edmund Randolph opened the Convention’s substantive debate by introducing the Virginia Plan,²⁰ which soon prompted a discussion of the war power. The Plan said nothing directly about war power, but it proposed a national government headed by a “National Executive” which, in addition to “general authority to execute the National laws,” would have “the Executive rights vested in Congress by the [Articles of] Confederation.”²¹ Various speakers objected that this language could be read to give war powers to the President.²² The delegates did not vote specifically on the war power point, but on a subsequent motion by James Madison (seconded by James Wilson) they dropped the reference to the executive powers of the Confederation Congress and substituted a direction that the executive would have power “to carry into execution the national laws” and “to appoint to offices in cases not otherwise provided for.”²³ The task of defining legislative and executive powers ended up with the inaptly named Committee of Detail,²⁴ which delivered to the Convention on August 6 a draft giving Congress the power “To make war.”²⁵

When the full Convention reached the “make war” language on August 17, Charles Pinckney suggested that the war power should go to the Senate rather than Congress as a whole, and Pierce Butler spoke in favor of “vesting the [war] power in the President.”²⁶ Butler’s suggestion received no recorded support; Elbridge Gerry replied that he “never expected to hear in a republic a motion to empower the Executive alone to declare war.”²⁷ Madison and Gerry famously moved to replace “make” with “declare,” which passed eight states to one.²⁸ That vote established what became the Constitution’s final language,²⁹ and the delegates seem not to have returned to it.

The August 17 debate tends to support the idea of congressional war-initiation power, but it is unhelpful on the question of delegation. Questions of how Congress would exercise war power were not addressed directly at all. One might argue that the delegates’ focus on the dangers of executive war initiation suggests that they would not have wanted Congress to delegate it broadly to the President.³⁰ Ellsworth and Mason, for example, seemed to favor congressional war power as a way of reducing the likelihood of war—because they thought presidents would be too inclined toward it.³¹ Sherman and Gerry argued (along with Pinckney, Rutledge, Wilson, and Madison in the earlier debate) that the President should not have war-initiation power.³² Perhaps this meant they thought the President should not have war-initiation power even with Congress’s approval, but that is not certain. Alternatively, they (or some of them) might have thought only that Congress should make the initial decision, but that decision might include empowering the President ultimately to exercise discretion. In the end, only a few delegates spoke to the war power issue (though the speakers included some of the most influential delegates).³³ It seems that the delegates were thinking generally about the question of which branch should have war power, and what the scope of that power would be,³⁴ but were not focused on how that power would be exercised in practice, including the permissibility or impermissibility of delegating it.

This pattern continued in the ratification debates. As at the Convention, war initiation was not a major focus. When it came up, speakers seemed to assume it was a congressional power without dwelling on how they expected Congress to exercise it. For example, in an often-quoted passage, James Wilson in Pennsylvania said:

This system will not hurry us into war; it is calculated to guard against it. It will not be in the power of a single man, or a single body of men, to involve us in such distress, for the important power of declaring war is vested in the legislature at large; this declaration must be made with the concurrence of the House of Representatives. From this circumstance we may draw a certain conclusion, that nothing but our national interest can draw us into a war.³⁵

The Federalist also had little to say about war initiation. The most significant discussion is in Federalist 69, in which Alexander Hamilton—a bit disingenuously—compared the President’s power under the Constitution to the power of the British monarch and the governor of New York. Regarding war power, Hamilton noted that while the monarch alone could declare war, under the Constitution that power “would appertain to the legislature.”³⁶

As with the comments at the Philadelphia Convention, these statements can be read to imply a nondelegable power in Congress. Although Wilson’s comment does not address delegation directly, concerns about lodging war initiation in a single person—instead demanding that such decisions ultimately rest with both houses of Congress—might also cut against allowing Congress to delegate its war power to the President. But again, that is far from certain. Such statements might only mean that Congress must make the initial decision regarding war, but that choice might include a decision to pass discretionary authority to the President. In Hamilton’s contrast between the British monarch and the Constitution’s President, even if Congress’s war-initiation power were delegable, placing it in Congress in the first instance would still represent a substantial limit on the President’s power compared to the British monarch’s.

Like the drafting debates, the statements regarding war power in the ratification period have only limited value for our inquiry. They are isolated statements by only a few participants (albeit important participants), not addressed to the particular issue of delegation, and not part of an extended discussion of the operation of war powers. Their central focus was to point out an important constitutional limit on presidential power. Their phrasing—and the fact that they were not contested by anti-federalist speakers or writers—indicates a broad consensus on the basic proposition that allocating declare-war power to Congress implicitly denied the President a corresponding independent power. But, how Congress could exercise its declare-war power is a different matter.³⁷

B. General Understandings of Delegation in the Founding Era

The framers and ratifiers might not have addressed war-initiation delegations specifically because they had a broader understanding of delegation that would encompass war power along with many other congressional powers. The founding-era view on that broader issue is sharply contested, with some scholars contending that the founding generation generally saw Congress’s powers as delegable subject perhaps to only modest limits³⁸ while other scholars argue that the founding generation held more exacting restrictions on congressional delegation.³⁹ This debate has said little about war power directly, and we do not take a position on it here.

One specific strand of that debate over the founders’ view of delegation, however, is quite relevant to war power and merits further discussion. Several commentators have suggested that, notwithstanding substantial general limits on delegation, the framers may have understood foreign affairs powers to be broadly delegable. Because that categorical exception might include war-initiation power, we address it briefly here.

The core case against delegation starts with the text of Article I, Section 1: “All legislative Powers herein granted shall be vested in a Congress of the United States . . . .”⁴⁰ By negative implication, it may be argued, legislative powers shall not be vested elsewhere—and statutes delegating power to the President, to the extent they transfer that legislative power to the President, appear to violate this directive.⁴¹ Further, influential English political theorists including Locke and Blackstone had suggested that delegation of lawmaking power by the parliament to the monarch threatened separation of powers.⁴² These sources may indicate a background principle of nondelegation informing the founding-era understanding of Article I.⁴³ But even if the Constitution contained such a broad nondelegation principle regarding Congress’s legislative powers, it is not clear how it would relate to war-initiation power (and other foreign affairs powers). Under the British system, war initiation—like much of foreign affairs—was a power of the monarch, not of parliament.⁴⁴ Thus, to the framers and the thinkers who influenced them, war power may not have been considered the type of lawmaking (that is, making rules governing ordinary private behavior) to which nondelegation principles applied.⁴⁵

The most developed defense of this position, principally based on Convention debates, comes from Professor Michael McConnell. He suggests that “the non-delegation doctrine, with its roots in the rejection of a Proclamation Power, may apply only to lawmaking, not to the former royal prerogative powers given to the legislative branch.”⁴⁶ He finds support in an exchange near the outset of the Convention, in which participants discussed and rejected a proposal by Madison to specify that the executive would have power “to execute such other powers not Legislative nor Judiciary in their nature as may from time to time be delegated by the national Legislature.”⁴⁷ McConnell suggests that the Convention accepted the view that Congress could authorize presidential exercise of congressional powers if those powers were not legislative in nature, and that the President’s exercise of such delegated powers was within the law execution power.⁴⁸ He goes on to include “formulating foreign policy” as an example of powers that are not judicial or legislative in nature and which might be especially delegable to the President.⁴⁹

Perhaps, but this seems far from certain. There was little recorded debate on this issue, and it seems unclear whether the delegates rejected Madison’s proposal because they thought it redundant (McConnell’s view) or because they opposed it on the merits. Nor is it clear whether the category of matters “not Legislative nor Judicial in their nature” approximated the former royal powers or included foreign affairs. And even if McConnell is right about the broad outlines of his conclusion, it is unclear whether Convention participants would have regarded war power as within the category of non-legislative delegable powers. Several key delegates, including Wilson and Madison himself, said or implied that war power was legislative in nature (even if some other foreign affairs powers might not be).⁵⁰

In sum, it is difficult to discern how the founding generation would have thought general principles of delegation applied to war power, even if one could determine what, if any, general principles on delegation they held in common. Lacking specific discussion of war power delegations, the founding-era debates and assumptions seem not to provide clear direction on the matter.

II. DELEGATION AND WAR POWER, 1789–1860

Given the ambiguity of the founding era regarding war power delegations, early practices may be particularly salient in establishing precedent.⁵¹ This Part examines early congressional practice relating to delegation and military conflicts. It proceeds in four parts. First it considers conflicts that Congress formally designated as “war.” Second, it describes the most significant authorization of military force in the period apart from formal declarations, the naval “Quasi-War” in 1798–1800. Third, it considers a series of lesser-known incidents involving delegations that did not lead to material conflicts. Finally, it examines delegations relating to uses of force in frontier conflicts with Native American tribes and suppression of piracy and insurrections.⁵²

We conclude in this Part that the early record of war-initiation delegation is surprisingly thin. Delegations during this period were scattered, relatively narrow, and often accompanied by special circumstances that caution against their use as broad precedents. Moreover, proposals to delegate war-initiation authority (or related authority) were sometimes opposed on constitutional grounds, including on the grounds that war-initiation power was especially nondelegable. These objections stand in contrast to Congress’s extensive delegations during this period as to the manner in which the President might conduct wars and other uses of force that Congress authorized.

A. Formal Wars

In the first seventy years of practice under the Constitution, Congress recognized four wars against foreign powers by name and authorized the President to use the U.S. military to fight them. Two of these are the well-known conflicts with Britain, begun in 1812, and with Mexico, begun in 1846. The other two, less commonly included on the list of formal wars, are conflicts with Tripoli (authorized in 1802) and Algiers (authorized in 1815).

The War of 1812 was the only time in this period that Congress used the phrase “declare” war. Amid rising tensions with Britain on various matters, President Madison asked Congress for a declaration of war in mid-1812, and Congress responded with an Act stating that “[W]ar . . . is hereby declared to exist between [Britain] and the United States . . . and that the President of the United States is hereby authorized to use the whole land and naval force of the United States to carry the same into effect . . . .” ⁵³

Notably for our purposes, the 1812 statute was not a delegation of war-initiation power. Unlike modern authorizations, it did not leave war initiation to presidential discretion. Congress itself invoked the state of war. The statute went on to authorize broad presidential discretion in conducting the war. But that is distinct from war initiation. At minimum, the Commander-in-Chief clause indicates a shared power of war-making between the President and Congress.⁵⁴ Congress’s recognition of broad presidential discretion signaled Congress’s decision not to direct or limit the President’s exercise of the commander-in-chief power in conducting the hostilities.

Congress’s first formal recognition of a state of war came a decade earlier in 1802. The Pasha (ruler) of Tripoli, in modern Libya, as a prelude to beginning piratical attacks on U.S. merchant shipping in the Mediterranean, formally declared war against the United States in 1801.⁵⁵ President Jefferson asked Congress for authority to respond;⁵⁶ in early 1802, Congress recognized a state of war and authorized the President to conduct hostilities against Tripoli.⁵⁷ Although Congress did not use the word “declare,” the 1802 Act resembled the subsequent 1812 declaration in other significant respects—including that it did not delegate war-initiation authority. Congress itself acknowledged the war’s existence. Again, Congress recognized broad presidential authority to conduct the war, but the President presumably would have had that authority in any event once the existence of war was established.⁵⁸

The 1815 events with Algiers resembled the earlier Tripoli conflict. During the War of 1812, Algiers’s navy began seizing U.S. shipping, but the United States had little ability to respond with force. After hostilities with Britain ceased, President Madison asked Congress for war-making authority, which Congress granted in similar terms to the 1802 Tripoli authorization. As with Tripoli, Congress did not delegate war-initiation power; it recognized a state of war and authorized the President to direct the military conflict as he saw fit.⁵⁹

Finally in this period, Congress recognized a state of war with Mexico in 1846. In popular history the Mexican War is often listed with the War of 1812 as a “declared” war. In fact, Congress’s authorization of the Mexican War tracked its authorization of the Algiers and Tripoli conflicts, not using the word “declare” but instead recognizing the existence of a state of war resulting from the other party’s acts. Prior to the war, President Polk (without Congress’s authorization) sent U.S. troops into territory claimed by both the United States and Mexico, whereupon Mexican forces attacked U.S. troops in the disputed territory. Polk then asked Congress to recognize a state of war created by Mexico, which Congress did.⁶⁰ Leaving aside the much-debated constitutionality of Polk’s provocative deployment,⁶¹ for present purposes the key point is that Congress did not delegate war-initiation power to the President. As in the previous conflicts, Congress made the decision for war itself and authorized broad presidential discretion in the means of fighting it.

In sum, Congress’s treatment of formal war authorization in the early nineteenth century differed significantly from Congress’s modern authorizations. None of the four nineteenth-century acts delegated war-initiation authority. In each of them, Congress itself stated the existence of war without qualification. This contrasts with modern authorizations that, as discussed below, leave to the President the decisions when, whether, and (sometimes) against whom to begin hostilities. Early nineteenth-century practice regarding formal war authorizations thus affords little precedent for modern delegations of war-initiation power.

These four episodes do support broad congressional delegation of power over the conduct of war. But this should not be read to endorse delegation of congressional war-initiation power because the President was likely understood to have independent war-waging authority once Congress recognized a state of war. To the extent Congress has concurrent authority to manage the conduct of war, the nineteenth-century authorizations signaled that Congress would not exercise that power and left the conduct of war to the President. As a result, early precedent for the delegation of war-initiation power must be sought elsewhere.

B. The Quasi-War

The naval war with France at the end of the eighteenth century, called the Quasi-War,⁶² is a frequently cited example of early post-ratification delegation. David Currie observed: “The bellicose legislation of the Fifth Congress was riddled with broad delegations of authority.”⁶³ As to war initiation delegation, however, that is something of an overstatement.

The conflict opened in 1797 when France began seizing U.S. merchant ships as part of an effort to cut off trade with Britain. Congress’s response was initially limited. Consistent with President Adams’s policy of strengthening defenses while seeking peace, it appropriated money for coastal fortifications (with discretion to the President in choosing their location),⁶⁴ authorized (but did not require) the President to equip and man three frigates (with very specific directions as to the treatment of the crews), and authorized (but did not require) the President to increase the strength of existing revenue cutters.⁶⁵ In early 1798, Congress increased appropriations to these ends and authorized the President to raise an additional regiment of artillery and engineers.⁶⁶ But mostly Congress rejected proposals for more aggressive measures from Federalist leaders and awaited results from a diplomatic mission sent by Adams.⁶⁷

The diplomatic mission failed, and once the outcome was known in mid-1798, Congress embraced more warlike measures in the form of delegations. Congress authorized the President to use the navy to seize French ships committing “depredations” on U.S. shipping or “hovering” on the U.S. coastline for that purpose.⁶⁸ On the same day, it also approved a Federalist proposal to authorize the President to raise additional troops at his discretion (the so-called Provisional Army); however, at the insistence of Republican and moderate Federalist congressmen, the President’s authority was limited to situations in which a foreign power declared war or there was an actual or imminent invasion.⁶⁹ In June, Congress prohibited U.S. ships from sailing to French ports and prohibited French ships from sailing to U.S. ports, with discretion to the President to waive the prohibition in some circumstances.⁷⁰ Congress later that month authorized U.S. merchant ships to arm themselves and resist French attacks, with the President authorized to provide what we would now call rules of engagement and to suspend the law if France disavowed further hostilities.⁷¹

In July 1798, Congress took its strongest step, authorizing the President to use the navy to attack French navy ships and privateers on the high seas and to commission U.S. privateers.⁷² Some congressional leaders discussed declaring war, but that was never formally proposed, nor was there specific direction to the President to expand the war (merely an authorization). This was the high point of Quasi-War delegation. Although the war continued into 1800 before a new diplomatic mission restored peace, Congress’s war-related legislation in subsequent years was largely confined to reenacting prior measures and making additional appropriations.

As delegations of war-making power, these measures are important but modest. Congress gave the President some discretionary authority in war-related matters. But the only direct delegations of the decision to use force were the two 1798 statutes authorizing attacks on French ships. Of these, the first (in May 1798) was purely defensive: the President could respond to French attacks or imminent attacks along the U.S. coast. One might have thought that the President had that power in any event, as part of the power (recognized by Madison at the Convention) to repel sudden attacks.⁷³ Moreover, Congress likely would not have seen this as delegating much policy discretion as a practical matter, as there was no doubt at that time the President would use the force described. Nonetheless, at least formally, the statute conveyed discretion to respond to warlike measures in limited circumstances.

The July 1798 authorization was broader and somewhat more akin to modern war power delegations. It permitted—but did not require—the President to expand the conflict to the high seas and against French shipping and naval forces generally. And the case for the President having this power independently is weaker than for purely defensive measures.⁷⁴ On its face, this was a material delegation. But Congress did not authorize the President to begin new hostilities—only to extend existing hostilities. Indeed, the July statute could be seen as lifting some restrictions of the previous statute, which implicitly constrained the President to defensive responses. And the July authorization was itself limited, allowing attacks on the high seas but not against French ports or other land facilities, for example in the French Caribbean colonies. Overall, it seems that Congress was trying to maintain tight control over the extent to which the conflict escalated into full-scale war, rather than transferring to the President substantial discretion over whether to escalate.

The related matter of the Provisional Army is noteworthy because Congress’s control over raising a national army (including whether there would be one at all) was such a sensitive issue at the founding. Congress delegated only limited power in this case, which might have been viewed as constitutionally comparable to delegating war power. Some members of Congress expressed grave concerns over broad delegation, successfully narrowing the measure’s proposed scope. The initial Federalist proposal, enacted by the Senate and sent to the House in April 1798, authorized the President to raise the army at his discretion, if he found it required by the public safety.⁷⁵ House Republicans objected, specifically in constitutional terms, that this unduly delegated congressional power to the President.⁷⁶ Though the delegation involved raising armies rather than initiating war, the two were thought analogous; Representative Brent, for example, argued that “if a proposition was made to transfer to the President the right of declaring war in certain contingencies, the measure would at once appear so outrageous, that it would meet with immediate opposition.”⁷⁷ These objections resonated with enough Federalists that the proposal was modified to limit the President’s discretion to specified circumstances of a declaration of war or actual or imminent invasion, and only during the next recess of Congress.⁷⁸ With this debate on their minds from earlier in the 1798 session, the lack of delegation-based objections to the July force authorization suggests that members of Congress probably did not regard the July measure as a substantial war-initiation delegation.

To be sure, there were other delegations in the Quasi-War period that could be precedent for other types of modern delegations. But as to delegating war-initiation power, the Quasi-War affords only limited precedent. That is particularly significant because the Quasi-War was the only foreign conflict fought pursuant to delegated discretionary authority in the early post-ratification era (and indeed, as later sections show, the only one prior to the twentieth century).

C. Delegations Not Leading to Military Conflict

Perhaps the most interesting and least studied episodes of war power delegation in the post-ratification era are those in which proposed delegations were refused, or in which delegations were made but no conflict ensued. These are significant because they highlight optional war power delegations, in which the President is authorized to engage in hostilities, or to opt not to act at all. We identified four such episodes, recounted below. They indicate that no clear consensus or consistent pattern existed in the mid-nineteenth century regarding war power delegation. Further, they provide little support for the proposition, discussed above, that formerly prerogative powers were understood to be broadly delegable.⁷⁹

1. The No-Transfer Act

In 1811, war with Britain was on the horizon. So was the United States’ acquisition of Florida. A year earlier, President Madison directed U.S. troops to take possession of West Florida (the coastal strip between the Mississippi River on the west and the Perdido River on the east),⁸⁰ on the view that it was part of the Louisiana territory purchased from France in 1803.⁸¹ Spain, which claimed and nominally controlled West Florida, objected but lacked power to mount opposition. That left Spain in control of East Florida (east of the Perdido River) for the moment, but U.S. acquisition of East Florida seemed inevitable. Seeking to make the best of a bad situation, Spain undertook negotiations for a U.S. purchase of East Florida.

With the looming threat of war with Britain and Spain’s increasing weakness, U.S. leaders worried that Britain might seize East Florida first. On January 3, 1811, Madison asked Congress for authority to use force to secure U.S. interests in East Florida.⁸² Congress responded with a resolution declaring that “the United States cannot see, with indifference, any part of the Spanish Provinces adjoining the said States eastward of the River Perdido, pass from the hands of Spain into the hands of any other foreign Power.”⁸³ Simultaneously, Congress approved the so-called No-Transfer Act, authorizing the President to use force in East Florida, either under an agreement with the “local authority” or in the event of “an attempt to occupy the said territory, or any part thereof, by any foreign government.”⁸⁴ All of this was done in extraordinary secret sessions (presumably to keep Britain in the dark).⁸⁵ Britain never made any moves to occupy East Florida, and following the War of 1812, the Monroe Administration concluded the Adams-Onis Treaty of 1819, under which, among other things, the United States purchased East Florida from Spain.⁸⁶

The significance of the No-Transfer Act’s delegation of war-initiation powers is unclear. On one hand, the Act entailed a consequential transfer of power to use force from Congress to the President, made without recorded objection on that ground.⁸⁷ Armed conflict with Britain was no small thing (as the country found a year later), and the decision to counter a British move in Florida with force carried potentially grave consequences. Unlike the Quasi-War authorizations—the most substantial prior delegations of war power—the No-Transfer Act was not a response to attacks or likely attacks on the United States or U.S. ships; it authorized the opening of new hostilities against a formidable power. On the other hand, the authorization coupled with the resolution that the United States “cannot see, with indifference” any foreign seizure of East Florida, may have been meant to leave little discretion to the President to fail to respond to a British move. The secret Act thus might be seen more as a limited declaration of war conditioned on occurrence of a specific event, rather than a delegation.⁸⁸ In that sense, it is not directly analogous to modern war-initiation delegations that leave it to the President to decide on war or not war.

2. Rebuffs of Jackson

As President, former General Andrew Jackson twice sought authority to use the U.S. military to press claims against Mexico and France. Both times Congress declined to enact Jackson’s requested authorizations.

By an 1831 treaty, France agreed to pay claims by U.S. shipowners arising from French seizures during the Napoleonic Wars. France failed to pay as required, and in 1834 Jackson asked Congress for authority to make armed reprisals against French property.⁸⁹ Congress refused, with some speakers referring to the issue of delegation (although much of the discussion focused on the practical question of whether force was necessary). Representative Claiborne argued that the proposal would “be virtually conferring upon the President unconstitutional power—a power to declare war.”⁹⁰ The Senate Foreign Relations Committee Report on the matter, presented by Henry Clay, specifically objected to Jackson’s request partly on delegation grounds.⁹¹ The President’s supporters, while not defending delegations of war power, responded that reprisals, which were all Jackson proposed, were different from war.⁹²

Similar events transpired with respect to Mexico in 1837. United States citizens pressed various claims for injuries and lost property, which Mexico declined to satisfy. Jackson proposed that he make further demands and that Congress enact legislation authorizing reprisals and other uses of force if the demands were refused.⁹³ The Senate authorized the demands but not the reprisals or use of force, providing instead that the President should return to Congress for further authorization if Mexico did not respond satisfactorily. The House Committee on Foreign Affairs recommended a similar approach, but the full House failed to act before the end of the session.⁹⁴ Describing the episode later that year, new President Martin Van Buren observed the “indisposition to vest a discretionary authority in the Executive to take redress . . . .”⁹⁵ Congress refused to act on Van Buren’s renewed requests for authority against Mexico, and the matter was later settled by a treaty sending the claims to arbitration.⁹⁶

It is hard to know what to make of the failure of Jackson’s initiatives. Congress declined the requests to authorize prospective uses of force. Some reference, usually by the President’s political rivals, was made to constitutional limits on vesting the President with war-initiation power. Perhaps as importantly, responses did not claim broad constitutional license to delegate war-initiation power (nor invoke the No-Transfer Act precedent). But congressional objections likely arose as much from opposition to Jackson’s warlike measures on the merits as from constitutional scruples.

3. The Maine Boundary

President Van Buren subsequently had more success obtaining a war power delegation outside the Mexico context (one may speculate that the quieter Van Buren seemed less worrisome to Congress than the bellicose Jackson). In the 1830s, the uncertain border between northern Maine and Canada became a substantial issue. An attempted settlement through arbitration failed during Jackson’s administration, and Van Buren inherited the dispute. Professing commitment to a peaceful solution, Van Buren nonetheless asked Congress for authority to use military force in the disputed territory.⁹⁷ Perhaps surprisingly, given Congress’s rejection of Jackson’s requests for military authorizations, Congress in 1839 authorized the President “to resist any attempt on the part of Great Britain, to enforce, by arms, her claim to exclusive jurisdiction over that part of the State of Maine which is in dispute…” by “employ[ing] the naval and military forces of the United States and such portions of the militia as he may deem it advisable to call into service.”⁹⁸

The debates over this measure do not provide a clear picture of how Congress understood it. Some members of Congress specifically objected to delegating war-initiation power.⁹⁹ Others thought the matter largely one of defense against invasion, perhaps in which the President already had constitutional and statutory power to respond.¹⁰⁰ Ultimately the bill passed by wide margins.¹⁰¹

This might at first seem a clear-cut case of substantial war power delegation. However, its constitutional significance may be discounted because it involved direct defense of territory disputed between Britain and the United States—and hence perhaps the President’s implied independent power to repel invasions—and it depended on the specific contingency of Britain using force in connection with that dispute. It nevertheless represents a counterpoint to earlier rebuffs of Jackson and a continuation—arguably an expansion—of the willingness to delegate in the No-Transfer Act. In particular, the Maine delegation is unique for the time in putting entirely in the President’s hands, as a practical matter, the decision whether or not to use force. As discussed, the No-Transfer Act (beginning with its title) was close to a direction to the President not to allow British seizure of East Florida. And in the Quasi-War delegation, Congress presumably understood and intended that President Adams would use naval force against France once authorized. The Maine delegation differed from those previous examples in that Congress probably preferred that military conflict not result. Congress would not have assumed that voting for delegation was a vote for war. Rather, circumstances indicated that Congress was passing to the President the decision whether to use force based on future circumstances. In this sense the episode—despite other aspects limiting its significance—can be seen as the first “modern” delegation of the decision whether to initiate war.

4. Buchanan’s Mixed Record

After the Maine dispute, the next major discussion of delegating war power occurred in the Buchanan Administration. Buchanan was somewhat more inclined to use force abroad than his immediate predecessors, but he also generally believed that the President lacked authority to initiate hostilities without congressional approval.¹⁰² Thus he made several requests for authority to use force in Mexico, Central America, and Paraguay, with mixed results.

Buchanan’s putative success arose after Paraguayan artillery fired on a U.S. ship, the Water Witch, on the Paraná River.¹⁰³ At Buchanan’s request, Congress authorized the President, if Paraguay refused reparations, to “adopt such measures and use such force” as needed to induce Paraguay to give “just satisfaction” for the attack.¹⁰⁴ Buchanan sent a naval force to the region, leading to a diplomatic settlement.

On first look, the Water Witch incident may seem to be a major step in the development of war power delegation. Like the Maine delegation some twenty years earlier, it gave the President wide discretion, both on paper and in practice, to decide whether to launch military attacks. But unlike the Maine delegation, it did not address threats to U.S. territory or immediate U.S. strategic interests. It more closely resembled the authorizations proposed by Jackson and rejected by Congress in part on the argument that they were unconstitutional delegations. Like the Maine delegation but even more so, the Paraguay delegation might be thought akin to modern war-initiation delegations.

But other events complicate the episode as a precedent for emerging consensus on war power delegation. First, Buchanan’s proposed action also resembled earlier unilateral presidential uses of force responding to affronts to U.S. interests abroad. In a notable example, in the immediately preceding Pierce Administration, U.S. forces shelled the city of Greytown, Nicaragua, after perceived mistreatment of a U.S. diplomat.¹⁰⁵ In light of this and other unilateral actions, some members of Congress may have thought congressional approval was not constitutionally required in the Water Witch incident and thus might not have regarded it as a consequential delegation. Moreover, the Paraguay delegation itself drew some sharp opposition, including on the ground that it was unconstitutional.¹⁰⁶ And while opposition was overcome with respect to Paraguay, it prevailed against Buchanan’s more far-reaching proposals.

Buchanan had in mind multiple aggressive uses of military force in Latin America. He asked Congress for authorization “to employ the land and naval forces of the United States” to protect the isthmus of Panama.¹⁰⁷ Similarly, he asked Congress for authority to use force to prevent closure of alternate routes across Nicaragua¹⁰⁸ and the isthmus of Tehuantepec in Mexico.¹⁰⁹ Buchanan argued:

The remedy for this state of things [disorder and threats to Americans crossing between the oceans] can only be supplied by Congress, since the Constitution has confided to that body alone the power to make war. Without the authority of Congress the Executive cannot lawfully direct any force, however near it may be to the scene of difficulty, to enter the territory of Mexico, Nicaragua, or New Granada . . . even though they may be violently assailed whilst passing in peaceful transit over the Tehuantepec, Nicaragua, or Panama routes . . . . In the present disturbed condition of Mexico and one or more of the other Republics south of us, no person can foresee what occurrences may take place . . . .¹¹⁰

Buchanan also asked for authority to establish a military protectorate over parts of northern Mexico to defend the U.S. border, as well as authority to respond with force against Britain for interference with U.S. shipping.¹¹¹

Congress declined to act on all of these requests. How much this had to do with constitutional scruples is unclear; it may simply have been that a majority distrusted Buchanan’s motives. One scholar comments: “Congress was too jealous of the war-making power to heed the President’s requests, and Republican members in particular were too fearful of giving such authority to a president so sympathetic to the South’s desire for more slave territory.”¹¹² But constitutional arguments were strongly, if perhaps conveniently, invoked. Senator Trumbull objected that Congress did not have “any authority to surrender the war-making power to the President . . . He is not vested with it by the Constitution; and we have no right to divest ourselves of that power which the Constitution vests in us.”¹¹³ Buchanan responded that the requested authority “could in no sense be regarded as a transfer of the war-making power to the Executive, but only as an appropriate exercise of that power by the body to whom it exclusively belongs.”¹¹⁴ Invoking precedent, he added: “In [the Water Witch incident] and in other similar cases Congress have conferred upon the President power in advance to employ the Army and Navy upon the happening of contingent future events; and this most certainly is embraced within the power to declare war.”¹¹⁵

Thus, Buchanan’s experiences point in different ways. Congress approved a modern-looking war power delegation in the Water Witch incident, over constitutional objections. But in multiple other cases Congress ignored Buchanan’s appeals for advance authority to initiate hostilities at his discretion. Constitutional objections to delegation featured prominently in these debates as well, though Congress often had other, more practical reasons to withhold authority.

In sum, the record of war-initiation delegation as to foreign enemies in the pre-Civil War period is thin, though not entirely barren. We count three material delegations in addition to the Quasi-War: the No-Transfer Act, the Maine boundary delegation, and the Water Witch delegation. But each delegation was expressly conditioned on a specific fact—a fact that might have triggered the President’s limited independent constitutional authority to act anyway—and was somewhat offset by other near-contemporaneous episodes in which Congress refused delegations, with some objections expressed on constitutional grounds.

D. Using Force against Native American Tribes, Piracy, and Insurrection

Three other areas, distinct from war-initiation delegations, are sufficiently related to merit discussion. First, Presidents directed hostilities throughout this period against Native American tribes on the western frontier, generally with Congress’s implicit approval (although not with specific authorization). Second, Congress authorized the navy to suppress piracy and the slave trade. Third, Congress authorized the President to use the army and militia to enforce federal laws and suppress insurrections, an authority most notably invoked by President Lincoln in the Civil War.

1. Frontier Conflicts

The United States conducted military operations against Native American tribes on the frontier throughout the post-ratification period. Tribes were generally treated as tantamount to foreign nations for treaty-making purposes—that is, tribal treaties were adopted with the Senate’s advice and consent—so by parallel reasoning, the Constitution’s war power provisions arguably should have applied to them as well. It is not entirely clear how early Congresses saw the relationship between the tribes and constitutional war power, but in any event, the frontier conflicts do not provide clear examples of war-initiation delegations. They followed a similar pattern. They were not directly declared or authorized by Congress (nor formally called war). Presidents often sought expansions of the military and additional funding on the basis of frontier conflicts, so Congress was well aware of them. But Congress appeared to assume the President had some independent power to conduct frontier conflicts—perhaps because they were internal and were (or were claimed to be) defensive in nature.

The conflict in the Ohio Valley immediately after the Constitution’s ratification is illustrative. President Washington inherited a violent northwest frontier, with large numbers of U.S. settlers moving west, provoking conflicts with Native inhabitants.¹¹⁶ In 1789, he asked Congress to reauthorize and expand the small army carried over from the Articles of Confederation, citing among other things the troubled northwest. Congress did so,¹¹⁷ and followed up with a further modest expansion in 1790.¹¹⁸ Washington dispatched an expedition under Josiah Harmar against the northwest tribes. When Harmar was defeated, Washington sent a larger expedition under Arthur St. Clair—which likewise met defeat. Congress authorized more troops, at Washington’s request, while conducting a contentious investigation into St. Clair’s defeat. The new troops, commanded by Anthony Wayne, gained a decisive victory in 1794.¹¹⁹

The source of Washington’s authority to fight the northwest conflict is unclear. It is possible to see the early military statutes as broad delegations to the President to use the authorized troops as the President thought appropriate (including for offensive operations) on the frontier.¹²⁰ The statutes did not say this, though. They simply authorized troops, with no direction on their use.¹²¹ It seems more likely that Congress understood the troops to be available to respond to ongoing hostilities of the northwest tribes, which had begun before Washington took office. That is, Congress may have seen the United States as already at war in the northwest, with the troop authorizations allowing Washington to use his independent power to fight an existing war but not delegating power to start new ones.¹²²

There is reason to think Washington took the latter view. While directing campaigns against the northwest tribes without express congressional authorization apart from the authorization of the army, at the same time Washington refused requests from local authorities to use troops against tribes in the southwestern territories, where only sporadic violence had occurred. Washington explained that offensive operations in the south needed specific congressional approval.¹²³ Of course, Washington may simply have wanted to avoid southwestern conflicts while embroiled in a northwestern one. But his constitutional reservations fit well with the view that in authorizing troops Congress was not authorizing new theaters of hostilities and that the President had independent power or congressional approval to fight preexisting frontier wars but not to start new ones.

In any event, the Ohio Valley conflict seems a doubtful precedent for congressional delegation of war-initiation power. It is not clear that Congress saw itself delegating such power, as opposed to supplying troops and funds to a pre-existing and ongoing effort. The relevant statutes do not speak in terms of authorization, and modern scholars have drawn various conclusions from them.

Nineteenth-century frontier conflicts took a similar course, typically proceeding on the proposition that they were defensive wars or aspects of law enforcement.¹²⁴ The 1819 Seminole War is an important example. President Monroe, without congressional authorization, directed Andrew Jackson to attack the Seminoles in Spanish Florida in response to Seminole raids into U.S. territory. During the campaign, Jackson attacked Spanish posts—which Monroe had not authorized. Jackson’s actions prompted fierce constitutional debate in Congress. But most participants in the debate conceded that no congressional authorization was needed for hostilities against the Seminoles because those operations responded to attacks; the debate focused on the propriety of attacking the Spanish (who arguably encouraged the Seminoles but had not themselves attacked the United States).¹²⁵ This debate reinforces the more general impression that both the executive branch and Congress regarded the Native American conflicts (rightly or wrongly) as defensive and thus undertaken on independent presidential authority.

Congress’s most important (and regrettable) action regarding the frontier conflicts in this period, the so-called Indian Removal Act of 1830,¹²⁶ is notable for what it did not say. The Act authorized the President to enter into treaties with tribes to exchange land east of the Mississippi River for land in the unorganized western territories. It made no mention of military force; on its face it contemplated peaceful transfers. Of course President Jackson expected forcible removal and most congressmen likely did as well, but this assumption was not reflected in the statute. A range of conflicts with Native American tribes arose during implementation of the removal policy but Jackson and his successors did not seek further congressional force authorizations.

Thus, as with the earlier frontier conflicts, the early nineteenth-century frontier conflicts do not supply a ready precedent for broad war power delegation. It does not appear that Congress saw continuing authorizations of troops as delegating to the President authorization to start wars. Congress probably thought defensive wars (including offensive counterattacks) against the frontier tribes were constitutional, but this view likely rested on independent presidential power to respond to attacks, or perhaps implicit congressional approval to continue fighting preexisting conflicts, rather than delegation of war-initiation power. At minimum, the frontier wars of the period do not provide clear examples of war-initiation delegations.

2. Piracy

Some authorities suggest that early Congresses delegated to the President discretion to use force against pirates.¹²⁷ On closer examination, this suggestion is overstated.

Congress first addressed piracy in the 1790 Crimes Act, which provided punishments for various federal offenses including piratical activities, as well as (among others) treason, murder on federal property, and counterfeiting.¹²⁸ As with the other crimes it encompassed, the Act did not expressly authorize presidential enforcement against pirates, presumably because members of Congress thought the President had independent enforcement power under Article II. Subsequent Presidents, notably Jefferson, used U.S. naval forces against pirates to enforce the 1790 Act, without recorded constitutional concerns.¹²⁹

In 1819, Congress passed an act specifically targeting piracy.¹³⁰ Unlike the 1790 Act, it expressly authorized the President to use the navy to protect U.S. shipping and seize piratical ships.¹³¹ The point of the 1819 Act, which passed without material recorded debate,¹³² is not entirely clear. Piratical activity in the Caribbean and the Gulf of Mexico had surged with the breakdown of Spain’s authority over its American colonies.¹³³ Under pressure from constituents, Congress may have felt a need to take visible action, perhaps to encourage greater presidential attention to the matter.¹³⁴ Part of the 1819 Act also may have been designed to overrule the Supreme Court’s 1818 decision in United States v. Palmer, which held that the general language of the 1790 Act did not criminalize piratical attacks by non-citizens against non-U.S. ships.¹³⁵ It seems unlikely, though, that members of Congress thought the Act was constitutionally necessary to give the President enforcement authority against pirates. The 1790 Crimes Act had no express use-of-force authorization. And, as discussed below, once Congress engaged in substantial debate on the matter, members appeared to agree that the President had independent enforcement power so long as his actions did not risk war with foreign nations.

The United States stepped up anti-piracy operations after the 1819 Act, with limited success. Pirates evaded U.S. forces by developing hidden bases in remote parts of coastal Cuba and Puerto Rico, where Spanish colonial authorities either could not or would not act against them.¹³⁶ A frustrated President Monroe asked Congress in December 1822 for authority to build additional, lighter draft ships suitable for coastal operations.¹³⁷ Supporters in Congress proposed a bill authorizing such construction “for the purpose of repressing piracy, and of affording effectual protection to the citizens and commerce of the United States in the Gulf of Mexico, and the seas and territories adjacent.”¹³⁸ This language provoked the first substantial congressional debate on the matter, with Representative Eustis objecting to the bill as delegating war power because the apparent grant of authority to use force in adjacent territory might lead to war with Spain.¹³⁹ Representative Fuller, who introduced the bill, responded that it was not intended to authorize pursuit of pirates on land, but added that the President likely had some independent pursuit power under the law of nations.¹⁴⁰

An amendment proposed by Representative Smyth to authorize land operations¹⁴¹ met sharp resistance.¹⁴² Much of the discussion turned on the extent to which the law of nations allowed pursuit of pirates on land, on which there was no consensus among the members. Representative Archer also argued that Smyth “proposed in effect to divest Congress and give to the Executive the power to make war.”¹⁴³ Eventually Smyth withdrew his proposal, and the bill passed the House and later (without substantive debate) the Senate, becoming law upon President Monroe’s signature later that month.¹⁴⁴

After another two years of mixed results, Congress returned to the matter in December 1824 with a proposal, backed by President Monroe, to authorize land pursuit and blockade of ports in Cuba and Puerto Rico that sheltered pirates.¹⁴⁵ The blockade authorization soundly failed in the Senate. While a range of practical concerns were expressed, Maryland Senator Samuel Smith also raised a delegation objection: “Shall we then, by sanctioning a section of this kind, put in the hands of the Executive the power of declaring war? — a power which we alone possess in Congress . . . . I am unwilling to grant a provisional power, that may lead us into war.”¹⁴⁶ A Senate motion also attempted to strike the provision authorizing land pursuit, with a number of Senators arguing that the authorization was unnecessary because the President already had this power under the law of nations. The Senate voted to retain the pursuit authorization,¹⁴⁷ but the House deleted it, apparently on the grounds that it was unneeded. Congressman Forsythe, introducing the Senate bill on behalf of the House Committee on Foreign Relations, said “[t]here did not exist any necessity for granting this provision of the bill, since the President has it already by the law of nations.”¹⁴⁸ The Senate acquiesced in the deletion; the enacted bill only authorized expenditure for the construction of ships, without authorization or direction as to their use.¹⁴⁹

These events cast considerable doubt on the idea that Congress delegated expansive power to the President regarding piracy. The 1790 Act made piracy a crime and Presidents used their constitutional enforcement power to counter it in U.S. waters and on the high seas. These activities appear not to have inspired constitutional concerns.¹⁵⁰ Although Congress passed the 1819 Act authorizing anti-piracy operations, Congress became hesitant as intensifying and inconclusive conflict suggested the need for operations in Spanish territory. Members appeared to think that some pursuit of pirates on land was allowed by the law of nations and thus fell within presidential enforcement power. But Congress resisted authorizing broader hostile operations that might provoke war with Spain, with some concerns expressed about unconstitutional delegation of war power. Modern suggestions that the nineteenth-century Congress delegated broad powers to use force against pirates thus seem mistaken or overstated.¹⁵¹

3. Insurrections and Law Enforcement

In contrast to early concern about delegating war-initiation power, early Congresses seemed relatively (though not entirely) unconcerned about delegating authority to suppress domestic disturbances. The 1792 Militia Act conveyed broad discretion, after some debate over delegation. It gave the President authority to call the militia into federal service “whenever the United States shall be invaded, or be in imminent danger of invasion from any foreign nation or Indian tribe,” as well as “in case of an insurrection in any state, against the government thereof”¹⁵² and “whenever the laws of the United States shall be opposed, or the execution thereof obstructed, in any state, by combinations too powerful to be suppressed by the ordinary course of judicial proceedings, or by the powers vested in the marshals by this act.”¹⁵³

These were quite broad delegations, made without reference to any particular situation. In the House they prompted objections. “It was surely the duty of Congress,” one member said, “to define, with as much accuracy as possible, those situations which are to justify the execut[ive] in its interposition of a military force.”¹⁵⁴ The House added amendments limiting power to suppress insurrections to situations where a state requested assistance, and limiting power to enforce federal laws to situations where a federal judge found the laws could not be enforced by ordinary means. In addition, the President could use only the militia of the affected state unless it was insufficient and Congress was not in session. The 1792 Act was also effective for only two years¹⁵⁵ (barely lasting to its 1794 invocation by President Washington during the Whiskey Rebellion). But even with these limitations, the Act contained much more open-ended delegations than anything on the international front for many years to come.

A subsequent Militia Act in 1795 made the authorization permanent and dropped several of the restrictions.¹⁵⁶ Congress followed up with the Insurrection Act in 1807, authorizing the President to use the regular army (as well as the militia) to suppress insurrections in situations where the President was authorized to use the militia.¹⁵⁷ The 1807 Act’s most famous invocation was the Civil War, as President Lincoln rested his initial military response to Southern secession in part on his authority to suppress insurrection. As the Supreme Court put it in the Prize Cases in 1863, rejecting a challenge to Lincoln’s actions:

The Constitution confers on the President the whole Executive power. He is bound to take care that the laws be faithfully executed. He is Commander-in-chief of the Army and Navy of the United States, and of the militia of the several States when called into the actual service of the United States. He has no power to initiate or declare a war either against a foreign nation or a domestic State. But by the Acts of Congress of February 28th, 1795, and 3d of March, 1807, he is authorized to called out the militia and use the military and naval forces of the United States in case of invasion by foreign nations, and to suppress insurrection against the government of a State or of the United States.¹⁵⁸

Compared to delegations of war-initiation power, these authorizations were quite broad, especially after 1795. They operated generally, not in connection with any particular uprising, and (again, especially after 1795) left it largely to the President’s discretion when using the military or militia for domestic purposes was appropriate. And as the Civil War demonstrated, they could authorize large-scale presidential uses of force.

Yet as with piracy, delegation of authority to suppress insurrection stands in a very different light from delegation of authority to start foreign wars. The President has the constitutional authority and obligation to enforce the law, as well as an implied power to repel sudden invasions;¹⁵⁹ the Militia and Insurrection Acts gave him tools (the militia and military) to do so. The President has no corresponding constitutional power relating to war initiation in situations where Congress would be delegating to the President an exclusive power of Congress. Delegating power to use state militia forces might also be distinguished from delegating war power on a separate textual ground: unlike the Declare War Clause that simply grants that power to Congress, Article I states that Congress has the power “[t]o provide for calling forth the Militia” for certain purposes, perhaps indicating that militia powers are more appropriately delegated.¹⁶⁰

E. Conclusion: Implications of the First 70 Years

The early history of war power delegations is complex and resists easy conclusions. But several important ones may be ventured. First, it supplies surprisingly little precedent for modern broad delegation of war-initiation power. Most foreign conflicts of the time were fought pursuant to formal congressional recognition of a state of war—even relatively small-scale ones such as those against Tripoli and Algiers. The only foreign conflict fought by delegated authority was the 1798–1800 campaign against French ships on the high seas, but that was limited in important respects and occurred in the midst of ongoing low-level conflict. That record does not show war-initiation delegation to be unconstitutional, but it does show it to be unusual.

Second, in some now-obscure situations, delegations of war-initiation power began tentatively to take hold—first in the No-Transfer Act, then in the Maine boundary delegation, and finally in the Water Witch incident. So one cannot say the early period rejected war-initiation delegation. But these episodes are balanced by contentious debates over the Provisional Army and unsuccessful requests for delegated power to use force by Presidents Jackson and Buchanan, in which there was a recurring idea that the Constitution imposed limits on Congress’s delegation of its war powers. From the Republic’s birth, there has been an influential strain of thought that regards war powers as especially nondelegable. At minimum, this evidence should caution against a quick assumption that early constitutional practice supports setting aside or loosening general nondelegation principles when it comes to war-initiation power.

At the same time, early practice finds support for broad authorizations in areas where the President had some degree of independent constitutional power. Substantial delegations of war waging (as opposed to war initiating) authority were routine, accompanying all of Congress’s declarations of war, consistent with the President’s power as commander-in-chief to carry out wars once begun. Further, Congress provided broad authorizations in related areas, including using force against pirates and to suppress insurrections¹⁶¹—areas in which the President’s power to enforce law indicated substantial independent presidential authority.

III. WAR POWER DELEGATIONS FROM THE CIVIL WAR TO WORLD WAR II

This Part considers historical practice relating to war power delegations from 1865 to 1945. Though likely beyond the time relevant to the Constitution’s original meaning, practice during this period—a time in which the United States emerged globally as a great power—might contribute to the “historical gloss” on the constitutional regime of delegation.

Again, however, we find little from this period to support a constitutional practice of war-initiation delegation. Congress declared three wars, and authorized the President to direct them, but otherwise most uses of force during this time relied on claimed independent presidential authority, an increasingly common feature of U.S. foreign policy.

It was also during this period, however, that the Supreme Court issued its most significant decision on the nondelegation doctrine and foreign affairs. The Court’s 1936 decision in Curtiss-Wright rejected a challenge to delegation regarding certain arms exports and stated that the nondelegation doctrine applies less strictly in foreign relations than domestic affairs. Though not involving war powers, the decision’s broad language could be read—and we show in later Parts that it would be read by some—to apply in that area.

A. Declared Wars

From 1898 to 1945, the United States fought three formally declared wars. As with earlier major wars, Congress delegated to the President vast discretion over how to wage them, but the declarations did not give the President decision-making discretion over whether to wage them.

1. War with Spain: Congressional Direction to Use Force

In 1898, U.S. relations with Spain had been fraying for years, primarily over Cuba, a Spanish colony seeking its independence. United States investors in Cuba’s agricultural industry also pressed for protection of their interests, and interventionist sentiments intensified when the battleship U.S.S. Maine mysteriously exploded in Havana harbor, where President McKinley had sent it to protect U.S. citizens and property.¹⁶²

On April 20, 1898, Congress passed—at McKinley’s request—a joint resolution calling for Spain to withdraw from Cuba and authorizing the President to intervene militarily to support Cuban independence.¹⁶³ One remarkable feature of that force resolution was its imperative voice. It not only licensed the President to use force but instructed him to do so: “the President of the United States . . . hereby is . . . directed and empowered to use the entire land and naval forces of the United States, and to call into the actual service of the United States the militia of the several States, to such extent as may be necessary” to compel Spain to withdraw from Cuba. True, the resolution’s phrase “as may be necessary” could be read either as giving the President discretion over how much and what type of force to use—or even whether to use it at all. But unlike modern force authorizations giving the President an option to use force, this act obliged him to. Moreover, at the time that Congress directed the President to use force against Spain, the President had made clear his intention to do so.¹⁶⁴

The April 20 resolution prompted Spain to break off diplomatic relations. McKinley then imposed a naval blockade of Cuba, and Spain responded by declaring war.¹⁶⁵ The President returned to Congress on April 25 requesting a war declaration.¹⁶⁶ A legal formality at that point, Congress that day unanimously passed by voice votes a resolution backdating its war declaration by four days, to the date of Spain’s declaration.¹⁶⁷ As in previous declared wars, Congress recognized a state of war rather than leaving the President discretion whether to do so.

2. World Wars I and II

Following German targeting of U.S. merchant ships in the Atlantic during World War I, as well as other hostile actions, President Woodrow Wilson asked Congress on April 2, 1917, to declare war against Germany. Within days Congress obliged by large majorities. Its joint resolution stipulated “[t]hat the state of war between the United States and the Imperial German Government which has thus been thrust upon the United States is hereby formally declared” and “authorized and directed”—echoing the imperative voice of the 1898 resolution—the President “to employ the entire naval and military forces of the United States and the resources of the Government to carry on war against the Imperial German Government.”¹⁶⁸ Later that year, Congress declared war against Germany’s ally Austria-Hungary, after that government “committed repeated acts of war against” the United States.¹⁶⁹ That war resolution’s operative language mirrored the Germany resolution. Both declarations granted immense discretion to the President over how to carry on the war, but they gave no option as to whether to engage in war.¹⁷⁰

World War II, the United States’ last formally-declared war, entailed six separate congressional war declarations.¹⁷¹ These declarations—against Japan, Germany, Italy, Bulgaria, Hungary, and Rumania—used a common template. They recognized a state of war to exist and (like the 1898 and 1917 resolutions) “authorized and directed” the President to use force to defeat each enemy.¹⁷² The President’s delegated discretion was entirely about how to wage war, not whether to enter the war.

B. Force Authorizations Other than Declared Wars, 1865–1945

Perhaps surprisingly, the post-Civil War period saw few congressional force authorizations apart from declarations of war. As it corresponded to the nation’s increasingly active and powerful position on the world stage, one might expect more force authorizations. But as discussed below, there were only a few, and even these came with significant qualifications. Presidents fought no major foreign conflicts pursuant to delegated authority during this period, although independent presidential uses of force became more frequent, more sustained, and more consequential. With the notable exception of the 1914 intervention in Mexico, discussed below, Congress played little role in, and at times opposed, increasingly interventionist U.S. foreign policy.

1. The Late Nineteenth Century

No conflicts of any sort were fought pursuant to expressly delegated authority between the end of the Civil War and Congress’s declaration of war against Spain in 1898. That was not because Presidents were uninterested in using force (although President Cleveland told Congress that he would not pursue war with Spain over Cuba even if Congress declared it).¹⁷³ While executive military unilateralism is more associated with the twentieth century, it had some roots in this earlier period. In general, though, the period prior to 1898 was marked by an absence of major foreign conflicts.

A prominent use of U.S. military force in the period was the 1893 landing of marines on Oahu in connection with the overthrow of Hawaii’s native ruler, Queen Lili’uokalani, by private American interests led by Sanford Dole (who became Hawaii’s head of government). President Harrison apparently did not authorize the landing in advance (though he approved it afterward), and it is unclear whether it played an important role in Dole’s success (Harrison denied that it did). Congress did not authorize this use of force, though Congress as a whole also did not object to it.¹⁷⁴

United States Presidents (or cabinet secretaries) had more direct involvement in several other low-level deployments or uses of force, including by the Grant Administration in the Dominican Republic,¹⁷⁵ the Hayes Administration in Mexico,¹⁷⁶ the Cleveland Administration in Haiti,¹⁷⁷ and the Harrison Administration in Brazil.¹⁷⁸ None of these incidents led to significant hostilities, but they marked a trend of presidential unilateralism that intensified in subsequent years. Congress did not directly approve any of these operations.

Three incidents bordering on delegation merit brief further discussion. During the Hayes Administration, Congress passed a bill authorizing the President to use measures “short of war” in a dispute with Britain over an imprisoned U.S. citizen.¹⁷⁹ Apparently nothing came of the authorization, and presumably (in keeping with the “short of war” limitation) Congress did not intend to authorize significant hostilities against a major power over a minor matter.

Second, during the late 1880s, tensions arose with Germany over the Samoan islands, where both countries had interests. President Cleveland sent naval ships to Samoa to protect U.S. interests and then “submitted [the matter] to the wider discretion conferred by the Constitution upon the legislative branch of the Government.”¹⁸⁰ Congress approved an appropriation to continue the naval deployment without directly addressing the use of force. Whether Congress regarded this as an authorization to use force if Germany attempted a takeover of the islands seems unclear; ultimately no open conflict with Germany occurred.¹⁸¹

Finally, in 1891, after street violence killed two U.S. sailors and injured others in Valparaiso, Chile, diplomatic tension escalated. President Harrison issued an ultimatum to the Chilean government and began preparations for war.¹⁸² However, he also submitted the matter to Congress asking for “such action as may be decreed appropriate.”¹⁸³ It is unclear whether Harrison was asking Congress for a declaration of war (at least one member of Congress read his message that way) or whether he was asking for delegated authority. It is also unclear whether Harrison would have taken unilateral action if Chile rejected the ultimatum and Congress failed to authorize force.¹⁸⁴ Chile defused the matter by meeting Harrison’s demands, and Congress took no action.

These three incidents are the closest Congress came to delegating war power during the period, and they fall far short of material delegations. As to Britain, Congress expressly disclaimed intent to delegate war power; in Samoa, it is unclear what level of force (if any) Congress meant to delegate; and the Chile episode can as easily be read as a request for a declaration of war rather than a request for a delegation (and, in any event, no congressional action followed). This period, like the preceding one, provides little clear practice or indication of consensus on war power delegation.

2. The Twentieth Century before World War II

President McKinley kicked off the new century by sending U.S. forces to China to aid other Western governments in suppressing the Boxer Rebellion in 1900.¹⁸⁵ Thereafter, presidential uses of force mounted, including Theodore Roosevelt’s support of Panama’s independence from Colombia (setting up U.S. control of the route of the prospective canal)¹⁸⁶ and substantial interventions, sometimes involving commitments of ground troops spanning multiple presidencies, in the Dominican Republic, Haiti, Cuba, and Nicaragua.¹⁸⁷

One should not overstate the rise of presidential uses of force. All major foreign conflicts in this period were declared by Congress. Though some presidential uses of force were quite consequential, none involved substantial commitments of troops, extended hostilities, or significant U.S. casualties. They were not clearly “wars” in the constitutional sense, and were not regarded as wars by the political branches or in popular description. Congress was generally aware of these activities, sometimes conducting inquiries of them after-the-fact, and continued to authorize the armed forces used for them, which later (and to this day) led the executive branch to argue that Congress tacitly acknowledged the President’s independent constitutional power to conduct them.¹⁸⁸ With Presidents less inclined to seek congressional authorization for low- and medium-level uses of force, there were limited congressional opportunities even to debate delegations.

Only one explicit congressional force authorization occurred in this period, though its significance is uncertain. It came with regard to the situation in Mexico in 1914.

Earlier, in 1910–1911, a popular uprising overthrew the longstanding dictatorial regime of Porfirio Díaz, bringing to power a democratically elected but weak government under Francisco Madero. During the unrest, President Taft considered the need to intervene to protect U.S. investments, but left the question to Congress, reporting that he had troops “in sufficient number where, if Congress shall direct that they shall enter Mexico to save American lives and property, an effective movement may be promptly made.”¹⁸⁹ Congress did not act.

Taft’s successor, Wilson, took a more aggressive stance. In the closing months of the Taft Administration, General Victoriano Huerta seized power from Madero, plunging Mexico into a bloody multi-sided civil war. Wilson refused to accept Huerta’s legitimacy and in 1914 used a minor incident to justify a substantial intervention. Telling Congress that Huerta had insulted U.S. forces by refusing a 21-gun salute, Wilson asked for authority to use force:

No doubt I could do what is necessary in the circumstances to enforce respect for our Government without recourse to the Congress, and yet not exceed my constitutional powers as President; but I do not wish to act in a manner possibly of so grave consequence except in close conference and cooperation with both the Senate and House. I, therefore, come to ask your approval that I should use the armed forces of the United States . . . .¹⁹⁰

Congress obliged with a joint resolution declaring that “the President is justified in the employment of the armed forces of the United States to enforce his demand for unequivocal amends for certain affronts and indignities committed against the United States.”¹⁹¹ The resolution included language (added to the House bill by the Senate) that the United States “disclaims any hostility to the Mexican people or any purpose to make war upon Mexico.”¹⁹²

The language—that the President “is justified” rather than “is authorized”—suggests that Congress may have accepted Wilson’s view that the President had independent authority to act.¹⁹³ Moreover, Wilson did not wait for Congress; while the Senate debated, Wilson ordered bombardment and seizure of the port of Veracruz, where U.S. forces remained for seven months until Huerta was overthrown.¹⁹⁴

Thus the only material force authorization (apart from war declarations) in this period was more likely a recognition of presidential power than a delegation, and in any event it disclaimed intent to authorize war; the ensuing hostilities, though perhaps consequential, were small in scale. Wilson’s presidency, like those before and after, was more significant for its growing presidential unilateralism than for delegation.

C. Curtiss-Wright and War Power Delegation

During this same era, the Supreme Court’s seminal 1936 opinion in Curtiss-Wright drew a distinction between foreign affairs delegation and domestic affairs delegation, stressing that the Constitution permits Congress greater latitude to delegate foreign affairs decision-making to the President.¹⁹⁵ That case arose from a 1934 joint resolution authorizing the President to proclaim an arms embargo against Paraguay and Bolivia if he found that doing so would contribute to peace in their ongoing war. “[C]ongressional legislation which is to be made effective through negotiation and inquiry within the international field,” wrote Justice Sutherland, “must often accord to the President a degree of discretion and freedom from statutory restriction which would not be admissible were domestic affairs alone involved.”¹⁹⁶

A leading justification the Court gave was functional—the President’s institutional advantages in agility and information—but the opinion also emphasized historical practice:

Practically every volume of the United States Statutes contains one or more acts or joint resolutions of Congress authorizing action by the President in respect of subjects affecting foreign relations, which either leave the exercise of the power to his unrestricted judgment, or provide a standard far more general than that which has always been considered requisite with regard to domestic affairs.¹⁹⁷

Curtiss-Wright’s implications for war power delegations are uncertain. War-initiation power of course may be thought of as a prime example of foreign affairs powers, and the Court’s invocation of the President’s institutional advantages in foreign affairs may seem particularly applicable to it. But Curtiss-Wright was not itself about U.S. war powers, only the prohibition of arms sales. Further, as our review of the historical record thus far shows, the Court’s argument from historical practice lacked support as applied to war-initiation, which (unlike some other aspects of foreign affairs) had not previously been a common subject of delegation. Nonetheless, as the following Part shows, Curtiss-Wright—especially its functional and historical claims—played a role in justifying expanded war power delegations in subsequent years.¹⁹⁸

IV. THE COLD WAR AND BEYOND

This Part shows that it was in the early Cold War period—when the United States became a superpower, with large standing military forces deployed around the world—that the modern practice of war power delegations, through legislative force authorizations, took hold. A watershed moment was a 1955 force resolution that, notably, the President never exercised.

It was also in that period, however, that Presidents asserted much broader unilateral powers to use military force, and Congress largely (if tacitly and dividedly) acquiesced. To those who viewed the President’s unilateral powers as wide even without legislative authorization, force resolutions would not have posed nondelegation issues. And to those opposing that view, the nondelegation issue probably seemed secondary to reclaiming Congress’s exclusive powers.

A. Collective Security and Delegation: The UN Participation Act

From World War II’s ashes, the victorious powers created the United Nations (“UN”), with a Security Council charged with maintaining peace and security, and empowered to employ military force to do so. In subsequent years, as the East-West Cold War quickly developed, the United States embraced a network of security commitments—some formal defense treaties, some informal pledges—around the world, aimed especially at stemming Communist aggression. To the architects of these arrangements, it was important that the United States be able to react quickly to crises and to assure foreign partners and adversaries of that ability. But a constitutional system of exclusive congressional prerogative to decide on war was designed to move slowly. Thus, security imperatives encouraged both more aggressive claims of independent presidential power and wider delegation of war power by Congress.

To participate effectively in the UN, Congress enacted the UN Participation Act (“UNPA”) in December 1945.¹⁹⁹ That statute provided that the chief U.S. diplomat at the UN would act at the President’s direction.²⁰⁰ It also contained a broad authorization to use force that remains on the books, but has never been used.

Specifically, section 6 authorized the President to negotiate agreements with the Security Council, pursuant to UN Charter Article 43, to make U.S. military forces available for maintaining peace and security.²⁰¹ Section 6 made Article 43 agreements “subject to the approval of the Congress,”²⁰² so that Congress retained responsibility over “the numbers and types of armed forces, their degree of readiness and general location, and the nature of facilities and assistance . . . to be made available to the [Council].”²⁰³ But the President did not need to return to Congress before providing these forces to the Council.²⁰⁴ Thus, if Congress approved Article 43 agreements in advance, the President could send forces into UN-approved armed conflicts as they developed. This statutory framework specified no geography. It specified no enemy. It specified no particular threat or type of threat.

The UNPA’s vast war power delegation was never activated because the idea that member states would place military forces at the Council’s disposal was stillborn. Cold War geopolitics made it impossible, given that the United States and the Soviet Union each had a veto on Council decisions. No Article 43 agreements were ever concluded. When the Charter and the UNPA were adopted, however, Article 43—and hence section 6 of the UNPA—were understood as a main way the Council would pursue its mandate to preserve international peace and security.²⁰⁵ The United States planned to carry it out and expected other members to do the same.²⁰⁶

The UNPA generated some congressional pushback on nondelegation grounds, but not much. To some critics, the arrangement was a double-delegation: it delegated decisions on war to an international organization, the Security Council, and it delegated decisions about U.S. participation in that body to the President. Senator Burton Wheeler, a prominent isolationist, was foremost among the objectors and among seven senators who voted against the UNPA.²⁰⁷ Wheeler noted “that there is no mention in the Constitution of any power of Congress to delegate its [Declare War] authority to the President and for him in turn to authorize his appointee to an international organization to vote to put down aggression in foreign countries.”²⁰⁸

In recommending passage, the Senate and House foreign relations committees stated that “[t]here exist several well-recognized and long-standing precedents for the delegation to the President of powers of this general nature.”²⁰⁹ Tellingly—and consistent with our reading that the historical record to this point is quite thin—they cited congressional delegations regarding international commerce in the early Republic, and only statutes specific to armed force from the Quasi-War with France.²¹⁰ They also cited Curtiss-Wright for support.²¹¹

The muted congressional concerns about the UNPA’s delegation might be explained on several grounds. Congress strongly supported the Charter—the Senate voted 89-2 for ratification²¹²—and many members understood that its collective security system required the U.S. military to back up Security Council mandates.²¹³ Additionally, political leaders and lawyers may have viewed UN-backed emergency interventions, sometimes called at the time “police action,” as distinct from inter-state war;²¹⁴ therefore, legislating discretionary authority to participate in them did not delegate war-initiation power. One lesson of World War II was that early international military action might prevent major war. If used to prevent wide-reaching war, then (so the logic went) an international police action did not implicate the Constitution’s Declare War Clause, at least not in the same way.²¹⁵ A strong current of thought within Congress held that the President could engage in limited police actions unilaterally but required congressional assent for full war.²¹⁶

This latter view of presidential war powers was implemented five years later, when North Korea invaded the South and President Truman intervened militarily, without express congressional authorization, in what became the three-year Korean War. Truman called the move a police action, citing UN approval. Though the Korean War did not involve delegation, it marks an important moment in background constitutional practice. The issue of war-initiation delegation assumes that Congress’s war-initiation power is largely exclusive (perhaps subject to narrow exceptions). Although there were precursors, the Korean War was a high-water mark in presidential assertions of unilateral constitutional power to launch large-scale military interventions. Congressional reactions were mixed, but it was also a high-water mark among a contingent of legislators who regarded unilateralism as proper. The Cold War’s stakes, the advent of nuclear weapons, a general sense of permanent military emergency, and extensive overseas American military commitments and troop deployments all contributed to this shift in thinking.²¹⁷

Alongside these geopolitical and security developments, the postwar period marked virtual obsolescence of formal war declarations, as a matter of both international law and U.S. domestic law.²¹⁸ The UN Charter’s outlawing of force except in self-defense or when authorized by the UN Security Council contributed to that discontinuance.²¹⁹ Beyond legal technicalities, the widespread public view of war as a moral catastrophe also cast old-fashioned war declarations as outdated. Without such clear markers, the lines around states of war—and hence war-initiation—became even blurrier.

B. Cold War Delegations

Many of the contextual factors—including perceptions of vital stakes in Cold War security crises around the world—that contributed to broader assertions of presidential powers to use force also set the stage for the broadest and potentially most consequential delegations of war power to that point in American history. The first ones, in the Eisenhower years, were never invoked. The last one of this critical early-Cold War period, in the Johnson years, was a basis for one of the United States’ costliest wars. These force authorizations entrenched the modern practice of broad war-initiation delegations.

1. A Delegation Turning Point: Eisenhower’s Force Resolutions

The post-World War II shift in thinking about presidential war powers is important to understanding two extraordinary congressional war power delegations during the Eisenhower Administration.²²⁰ Eisenhower rejected broad presidential unilateralism, generally believing only Congress could authorize major U.S. conflicts, but in a reversal of typical positions, many in Congress regarded the President’s unilateral war powers as vast.²²¹

Eisenhower’s security strategy emphasized military commitments to overseas allies to offset threats posed by the Soviet Union and China. It also emphasized taming runaway defense spending. To reconcile these seemingly conflicting tenets, Eisenhower relied on the threat of massive retaliation—including with nuclear weapons—against aggression. This approach encountered a major test in 1954–1955, when Communist China shelled tiny coastal islands that were under control of U.S.-aligned Nationalist China, based on the island of Formosa. In late January 1955, Eisenhower asked Congress for authorization to use force to assure Formosa’s security.²²² Days later, Congress obliged by nearly unanimous votes in both houses, resolving that:

[The] President . . . is authorized to employ the Armed Forces of the United States as he deems necessary for the specific purpose of securing and protecting Formosa and the Pescadores against armed attack, this authority to include the securing and protection of such related positions and territories of that area now in friendly hands and the taking of such other measures as he judges to be required or appropriate in assuring the defense of Formosa and the Pescadores.

This resolution shall expire when the President shall determine that the peace and security of the area is reasonably assured by international conditions created by action of the United Nations or otherwise, and shall so report to the Congress.²²³

As tensions simmered, Eisenhower signaled the possibility of major military action—even publicly referencing nuclear options. But all sides soon stepped back from the brink. Several years later, shelling and skirmishing between Communist and Nationalist China resumed, but the conflict did not escalate.²²⁴

The 1955 force resolution gave enormous discretion to the President. It provided advance authorization to initiate military conflict—understanding that it might include nuclear escalation—to protect a distant ally. It specified no target or enemy, though Communist China was obviously the intended one. Multiple times it emphasized the President’s role as sole judge of necessity. And its duration was subject to presidential judgment that the region was secure.²²⁵ Congress eventually repealed it twenty years later, and it probably would have stayed on the books much longer had the United States not reached a diplomatic détente with Communist China.

Despite this open-endedness, the nondelegation question was peripheral in congressional debates. Senator Wayne Morse, a harsh critic of Eisenhower with deep reservations about U.S. commitments to defend Formosa,²²⁶ was one of the few legislators to raise this issue. He objected to the constitutionality of a “predated declaration of war.”²²⁷ According to Morse:

I respectfully submit that we have no right under our oaths of office to delegate that great constitutional obligation of Congress. . . . In my judgement, we cannot do it constitutionally. . . . [W]e have no constitutional right to authorize any President to exercise his discretion in determining whether or not he should commit an act of war . . . .²²⁸

But Morse was an outlier. Eisenhower received more pushback from Congress on the grounds that its authorization was unnecessary.²²⁹ When Eisenhower consulted congressional leaders before seeking the force resolution, House Speaker Sam Rayburn “said that the President had all the powers he needed to deal with the situation,” and Rayburn even believed “that a joint resolution at this particular moment would be unwise because the President would be saying in effect that he did not have the power to act instantly.”²³⁰

Modern Presidents have usually requested force authorizations because the President has already initiated force or has concrete plans to do so. But an important aspect of the Formosa resolution is that it was never invoked. Eisenhower did not launch strikes, even when Communist China’s shelling of Chinese Nationalist forces later resumed. The authorization’s purpose was more about signaling than warfighting. Eisenhower’s strategy was deterrence—so China was a key audience—and he expected war power delegation to bolster the credibility of his threats.

For similar reasons, two years later, Congress passed—at Eisenhower’s urging—one of the broadest war delegations in American history. The 1957 act endorsed whatever force the President deemed necessary to prevent Communist aggression anywhere in the Middle East. It had no expiration date; in fact, it remains on the books today. Like the Formosa resolution, it was primarily about signaling rather than warfighting and has never been invoked.²³¹

As background, Eisenhower saw the Middle East as an emergency situation in 1956. The Suez crisis discredited European allies’ influence there, and the administration feared the Soviet Union would fill the vacuum without strong U.S. commitment. In January 1957, Eisenhower requested congressional support for military and economic aid for Middle East nations and sought authority to use military force to protect them. In a four-hour White House meeting with congressional leadership on January 1, 1957, the President emphasized that a force resolution would bolster deterrence and reassure allies:

[Eisenhower] added that should there be a Soviet attack in that area he could see no alternative but that the United States move in immediately to stop it. . . . He cited his belief that the United States must put the entire world on notice that we are ready to move instantly if necessary. He reaffirmed his regard for constitutional procedures but pointed out that modern war might be a matter of hours only.²³²

Two months later, Congress passed legislation endorsing the military and economic aid and included the following provision:

[T]he United States regards as vital to the national interest and world peace the preservation of the independence and integrity of the nations of the Middle East. To this end, if the President determines the necessity thereof, the United States is prepared to use armed forces to assist any such nation or group of such nations requesting assistance against armed aggression from any country controlled by international communism.²³³

The resolution provided that it would expire when the President determined that the “peace and security of the nations in the general area of the Middle East” was “reasonably assured” or if Congress revoked it with a concurrent resolution.²³⁴

Unlike the Formosa resolution, which Congress passed quickly and overwhelmingly, the Middle East resolution prompted major debate. Some members supported the proposal, some thought it was dangerously—and possibly unconstitutionally—open-ended, and some thought it was dangerous and possibly unconstitutional in the other direction, by implying that the President lacked unilateral power to respond to emergencies.

A number of senators and representatives specifically objected that it unconstitutionally delegated Congress’s war powers.²³⁵ Senator William Fulbright, for instance, argued that the delegation overturned legislative checks—though without clearly saying whether this was a constitutional or a policy objection:

It asks for a blank grant of power over our funds and Armed Forces, to be used in a blank way, for a blank length of time, under blank conditions, with respect to blank nations, in a blank area. We are asked to sign this blank check in perpetuity or at the pleasure of the President––any President. Who will fill in all these blanks? The resolution says that the President, whoever he may be at the time, shall do it.²³⁶

Other legislators believed that the President’s unilateral powers to use force were vast and feared that legislative authorization would undermine that position.²³⁷

In part to paper over these disagreements, the resolution avoided the term “authorize,” instead adopting a statement approving a policy of force. The Senate Report emphasized that the language had “the virtue of remaining silent” on constitutional allocations of war powers.²³⁸ The House Report added that “the resolution does not delegate or diminish in any way the power and authority of the Congress of the United States to declare war, and the language used in the resolution does not do so.”²³⁹ Given that Eisenhower believed congressional approval was constitutionally required to start wars, however, he must have read the resolution as a delegation—even if not technically styled as such.²⁴⁰

Taken together, the congressional force resolutions adopted at Eisenhower’s request represented major steps in the practice of war power delegation. They responded to a perceived strategic imperative to give the President discretion to respond immediately to threats against foreign partners. And nondelegation concerns were muffled or balanced by a rising sense among political leaders and many constitutional lawyers—though, ironically, not Eisenhower himself—that the President possessed such discretion even without congressional approval.

2. Two Cuba Crises: One Covert, One Nuclear

In the years after the Middle East resolution, Cuba was the epicenter of two major Cold War crises. Both situations involved congressional action that might be seen as war power delegations, though neither presented the issue squarely.²⁴¹ One concerned the postwar institutionalization of covert paramilitary operations by the Central Intelligence Agency (“CIA”); the other concerned a congressional resolution on Cuba policy.

Congress established the CIA in 1947 and authorized it to conduct various intelligence activities.²⁴² The statutes creating the CIA were ambiguous as to whether they authorized paramilitary operations, including training, advising, and supporting proxy forces against foreign governments. Under Eisenhower, the CIA engaged in clandestine operations against governments of, for example, Iran and Guatemala (both leading to overthrows), and Congress continued to fund the CIA.²⁴³ This raises questions whether Congress had implicitly delegated broad discretion to the President to engage in such operations, and whether that delegation included war-initiation power. The answers are unclear because the legislative basis was ambiguous and neither branch seemed to regard such operations as constitutionally equivalent to war or overt military intervention.²⁴⁴

The CIA paramilitary operation that most resembled an armed invasion was the 1961 Bay of Pigs fiasco, which highlighted those ambiguities. Though originally conceived under Eisenhower, President Kennedy in 1961 implemented plans for about 1,400 U.S.-trained and -armed Cuban exiles to overthrow Fidel Castro’s regime. After landing at the island’s Bay of Pigs, the invaders were routed by government forces.²⁴⁵ Little is publicly known about internal legal discussions behind the operation, but afterwards the Justice Department produced a memorandum characterizing such activities as exercises of the President’s independent foreign relations powers. That document compared covert paramilitary operations to war powers, but seemed to treat them as distinct. It also argued that Congress’s continued funding of such activities represented tacit congressional approval.²⁴⁶

Since then, Congress has legislated procedural and notification requirements for covert activities.²⁴⁷ It remains unclear, however, whether either branch regards the laws governing such activities as delegations, regulations of inherent presidential authority, or both—or whether either regards covert paramilitary activities as exercises of war powers or a separate category of foreign relations powers.

In 1962, Cuba was again the locus of Cold War crisis, arguably one of the most dangerous moments in world history. When U.S. intelligence discovered Soviet nuclear missiles on the island, Kennedy ordered a blockade—calling it a “quarantine”—and considered other military actions including air strikes. Although often considered an exercise of unilateral presidential powers,²⁴⁸ a congressional joint resolution resembling a war power delegation operated in the background.

Congress passed that Joint Resolution with overwhelming support on October 3, 1962,²⁴⁹ a few weeks before the missile crisis. It stated that “the United States is determined,” among other things:

to prevent by whatever means may be necessary, including the use of arms, the Marxist-Leninist regime in Cuba from extending, by force or the threat of force, its aggressive or subversive activities to any part of this hemisphere;

to prevent in Cuba the creation or use of an externally supported military capability endangering the security of the United States . . . .²⁵⁰

The resolution did not expressly authorize presidential action and is not generally regarded as a force authorization.²⁵¹ It instead declared a policy, implying strongly that the United States was willing to use force in broad circumstances. And the Cuban Missile Crisis is usually thought of as a momentous instance of executive unilateralism.²⁵²

Nonetheless, the resolution’s language resembles the 1957 Middle East resolution discussed above, which generally is regarded as a force authorization.²⁵³ And although the Kennedy Administration emphasized in internal deliberations the President’s Article II authority to act, it also cited this resolution for support, without clearly stating whether that support was legally (or merely politically) significant.²⁵⁴ The record is ambiguous as to whether members of Congress regarded this as a force authorization.²⁵⁵

In sum, around the same time Congress was enacting broad use of force delegations regarding Formosa and the Middle East, it was taking other actions that, although not formal delegations of war power, shared common attributes. One reason why their status as delegations remains ambiguous was that the executive branch simultaneously asserted (and Congress generally accepted) broad unilateral presidential war power. And, again, these episodes took place in the Cold War context of constant East-West hostilities and permanent U.S. military presence worldwide, which were further blurring the line between war and peace, or between war and military actions short of war.

3. Vietnam, War Powers Reform, and Delegation

In contrast to the Formosa and Middle East resolutions, Congress passed the 1964 Gulf of Tonkin Resolution with clear expectation that President Lyndon Johnson would use force in Vietnam—even if it was not at all clear that the conflict would become so protracted and costly. Indeed, by the time Congress enacted this resolution, the United States was already deeply involved militarily.²⁵⁶

Following an alleged North Vietnamese attack on American naval vessels, Johnson asked Congress for a broad force authorization. Days later and nearly unanimously,²⁵⁷ Congress provided:

That the Congress approves and supports the determination of the President, as Commander in Chief, to take all necessary measures to repel any armed attack against the forces of the United States and to prevent further aggression . . . . Consonant with the [Constitution and UN Charter] and in accordance with its obligations under the Southeast Asia Collective Defense Treaty, the United States is . . . prepared, as the President determines, to take all necessary steps, including the use of armed force, to assist any member or protocol state of the Southeast Asia Collective Defense Treaty requesting assistance in defense of its freedom . . . .This resolution shall expire when the President shall determine that the peace and security of the area is reasonably assured by international conditions created by action of the United Nations or otherwise, except that it may be terminated earlier by concurrent resolution of the Congress.²⁵⁸

This language gave the president broad discretion in extent of force (“all necessary measures” and “all necessary steps”), in purpose (“to prevent further aggression”), in geography (“southeast Asia”), and in time (until “the President shall determine” that peace and security is restored). Over the next decade, Presidents used it—in addition to assertions of unilateral executive power—to justify combat involving hundreds of thousands of troops, not just in Vietnam but also in neighboring countries.²⁵⁹

As in earlier post-war episodes, Senator Morse was a lonely voice objecting on nondelegation grounds.²⁶⁰ Morse labeled the resolution a “predated declaration of war, in clear violation of article I, section 8 of the Constitution, which vests the power to declare war in the Congress, and not in the President.”²⁶¹ “In effect,” he asserted, “this joint resolution constitutes an amendment of article I, section 8, of the Constitution, in that it would give the President, in practice and effect, the power to make war in the absence of a declaration of war.”²⁶² The resolution’s supporters generally disregarded the nondelegation issue—sometimes referring to the 1955 and 1957 resolutions as precedent for authorizing force in broad terms.²⁶³

As it had during earlier action on resolutions relating to Formosa [1955] and to the Middle East [1957], the committee considered the relation of the authority contained in the resolution and the powers assigned to the President by the Constitution. While the resolution makes it clear that the people of the United States stand behind the President, it was concluded that the resolution does not enter the field of controversy as to the respective limitations of power in the executive and the legislative branches.

H.R. Rep. No. 88-1708, at 4 (1964). Similarly, Secretary of Defense Robert McNamara treated the Resolution’s constitutionality as settled. Joint Hearing Before the Comm. on Foreign Rels. and the Comm. on Armed Servs.: Hearing on a Joint Res. To Promote the Maintenance of International Peace and Security in Southeast Asia, 88th Cong. 3 (1964) (testimony of Robert McNamara). McNamara pointed to past resolutions dealing with Formosa (1955), the Middle East (1957), and Cuba (1962) and observed “There can be no doubt . . . that these previous resolutions form a solid legal precedent for the action now proposed.” Id. A few congressional backers of the resolution explicitly endorsed delegating war power to the President.²⁶⁴

Although the nondelegation issue received almost no attention when the resolution was adopted, it became more controversial as the conflict became a quagmire and the Johnson and Nixon administrations expanded it. In some court cases challenging the legality of the Vietnam War, litigants argued that Congress had invalidly delegated its war powers without itself declaring war, but no courts directly adjudicated these claims.²⁶⁵ In a 1971 speech on the legal basis for the war, then-Assistant Attorney General for the Office of Legal Counsel William Rehnquist felt obliged to address the issue. Rehnquist argued that from historical examples (though citing none between the Quasi-War and the 1950s Eisenhower resolutions), “both Congress and the President have made it clear that it is the substance of congressional authorization, and not the form which that authorization takes, which determines the extent to which Congress has exercised its portion of the war power.”²⁶⁶ Brushing aside objections of “unlawful delegation of powers,” Rehnquist noted that Curtiss-Wright demonstrated that the “principle [of unlawful delegation of powers] does not obtain in the field of external affairs.”²⁶⁷ Thus, Rehnquist concluded, “[t]he notion that an advance authorization by Congress of military operations is some sort of an invalid delegation of congressional war power is untenable in the light of the decided cases.”²⁶⁸

This notion—that Congress’s advance authorization of military operations was an invalid delegation—surfaced often in war powers reform debates at that time, including legislative discussions that culminated in the 1973 War Powers Resolution. That resolution (which is still on the books) among other things required the President to withdraw forces from hostilities within sixty days unless Congress authorized their use. In legislative discussions leading to that act, critics argued that the Gulf of Tonkin Resolution had been an unconstitutional delegation, while some critics of the Resolution further argued that allowing the President sixty days of unilateral action was also an unconstitutional delegation. Senator Eagleton, for example, who initially supported the Resolution, voted against the final version because it delegated “a predated declaration of war to the President and any other President of the United States, courtesy of the U.S. Congress.”²⁶⁹ “That is not,” he argued, “what the Constitution of the United States envisaged when we were given the authority to declare war. We were to decide ab initio, at the outset, and not post facto.”²⁷⁰ Congressional defenders of the Resolution echoed Rehnquist’s arguments based on Curtiss-Wright that, even if the resolution was a delegation, it was a valid exercise of congressional power. ²⁷¹

The nondelegation objection to open-ended force authorizations, including the Gulf of Tonkin Resolution, was pressed at that time by prominent constitutional scholars. In a 1972 article styled Requiem for Vietnam, Professor William Van Alstyne wrote that “it seems to me clearly the case that the exclusive responsibility of Congress to resolve the necessity and appropriateness of war as an instrument of national policy at any given time is uniquely not delegable at all.”²⁷² In extensive legislative testimony, Professor Alexander Bickel argued that absent detailed standards, Congress could not delegate to the President its own war power, “despite United States v. Curtiss-Wright Export Corporation, which was really quite a limited case.”²⁷³ Curtiss-Wright’s statements about independent executive power were “largely dicta,” Bickel asserted, and the case was not about “powers to go to war, or to use the armed forces without restriction.”²⁷⁴ When asked whether he challenged the Gulf of Tonkin Resolution as an unconstitutional delegation, Bickel replied, “Oh, yes.”²⁷⁵ The Lawyers Committee on American Policy Towards Vietnam took a similar position.²⁷⁶

Other prominent legal voices—including Eugene Rostow, John Norton Moore, and former Supreme Court Justice Arthur Goldberg—endorsed the constitutionality of Congress delegating authority to the President to use force. Rostow rejected the arguments of Bickel and others “that, save for minor exceptions, hostilities can be authorized only by Congressional action at the time they begin [rather than in advance], and then by delegations narrowly limited in scope,”²⁷⁷ finding this argument so impractical as to be unconstitutional, and arguing that the Gulf of Tonkin Resolution was sufficiently specific.²⁷⁸ In his subsequent book about the Vietnam War and the Constitution, John Hart Ely noted that opposition to the conflict generated efforts by scholars to push nondelegation objections against the Gulf of Tonkin Resolution and other broad force authorizations, but he sided with the Resolution’s defenders: “The bottom line must . . . be that the Tonkin Gulf Resolution could not have been held at the time, and cannot now responsibly be said, to violate the delegation doctrine unless one postulates a general doctrine significantly stronger than any the Supreme Court (or the academy) has been willing to recognize since the 1930s.”²⁷⁹ Ely went on to say a stronger argument would be that force authorizations must be sufficiently specific regarding against whom they are directed, but he concluded the Gulf of Tonkin Resolution met that requirement.²⁸⁰

In sum, after being almost entirely eclipsed in the early Cold War, war-power nondelegation arguments made a comeback in the wake of failure in Vietnam. As the following section shows, these arguments linger throughout the post-Cold War period, though at this point again contained to a small minority view in Congress.

C. Post-Cold War Delegations

Since the end of the Cold War, the United States has fought three major ground wars: two in Iraq, and the war against al Qaeda and the Taliban in Afghanistan and elsewhere. All three were waged pursuant to delegated war power. The President requested, and Congress legislated, these resolutions in the context of broad executive branch assertions of presidential power to use force.²⁸¹

1. Two Iraq War Delegations

Congress enacted force authorizations against Iraq in 1991 and 2002, both delegating discretion to initiate war. They authorized the President to use force—or not—based on the President’s judgments about the need and wisdom. In that respect they resembled the 1950s force resolutions, though unlike those earlier ones, presidential intentions to use force were apparent at the time. They also contrast with other force authorizations from the period, such as Congress’s 1983 (Lebanon) and 1993 (Somalia) resolutions authorizing force when substantial military deployment was already underway.²⁸²

On March 23, 1999, the Senate also passed a nonbinding concurrent resolution authorizing the President to use air power against the Federal Republic of Yugoslavia in response to the Kosovo crisis. At that point, the President’s intention to use force was clear; he ordered the air campaign to commence the next day. See Cong. Rsch. Serv., RL30729, Kosovo and the 106th Congress 8 (2001). The Senate debate on the resolution contains no discussion of delegation. 145 Cong. Rec. S3065-S3118 (daily ed. March 23, 1999).

For completeness, we also note that the American Servicemembers’ Protection Act of 2002 authorizes the President to use “all means necessary and appropriate” to bring about release of certain U.S. or allied persons detained by the International Criminal Court. ASPA, Pub. L. No. 107-206, 116 Stat. 899 (2002). This statute is sometimes dubbed the “Hague Invasion Act” or “Invade the Hague Act” because that provision might be interpreted to include authorization of military force—and in that regard a possible war power delegation—though we regard that as largely symbolic and therefore do not discuss it in detail.

In the lead-up to the first Iraq War, following Iraq’s 1990 invasion of Kuwait, the George H.W. Bush Administration generally argued that it had authority to use military force against Iraq even absent congressional authorization.²⁸³ The central constitutional debate in public commentary, legislative hearings, and the eventual floor vote concerned that assertion.²⁸⁴ At this point, the UN Security Council had also authorized member states to use force if Iraq failed to withdraw from Kuwait by a certain date.²⁸⁵ Many members both favoring and opposing force authorization emphasized the importance of Congress’s role in commencing military conflict; and many members characterized even a broad delegation not as passing the buck but as preserving Congress’s formal role in war initiation.²⁸⁶ The House passed a nonbinding resolution (shortly before authorizing the use of force) that declared: “the Constitution of the United States vests all power to declare war in the Congress of the United States. Any offensive action taken against Iraq must be explicitly approved by the Congress of the United States before such action may be initiated.”²⁸⁷

Congress ultimately passed, in January 1991, a joint resolution authorizing the President “to use United States Armed Forces” pursuant to and to achieve the objectives of UN Security Council Resolutions, that is to eject Iraqi forces from Kuwait.²⁸⁸ At that point it was virtually certain that President Bush would use force. Nonetheless, the resolution gave the President wide latitude to decide whether or not to initiate war. The only express limitation was that before commencing war, the President was required to report to congressional leadership that, in his determination, peaceful diplomatic means were insufficient to achieve the objectives.

Some congressional concerns were raised, especially in the House, about nondelegation. Like other modern force authorization debates, though, this was not a central issue and the constitutional objections remained a small minority view. A few representatives framed their criticism as constitutional protests that sound like nondelegation arguments, but it was often not clear whether they were invoking strict legal barriers or just appealing to general principles of legislative responsibility (or perhaps a different constitutional argument).²⁸⁹

Nondelegation arguments emerged a bit more vocally in Congress during debate over authorizing the next Iraq War. For a decade after the Gulf War, the Iraqi regime had obstructed Security Council-mandated weapons inspections. In 2002, at President George W. Bush’s request, Congress again authorized force against Iraq. The 2002 resolution empowered the President to use military force “as he determines to be necessary and appropriate” to “defend the national security of the United States against the continuing threat posed by Iraq; and . . . enforce all relevant United Nations Security Council resolutions regarding Iraq.”²⁹⁰ The force resolution again included the condition only that the President report to congressional leadership his determination that diplomatic means were insufficient.²⁹¹

Though still a minority, several members of the Senate²⁹² and House²⁹³ raised constitutional nondelegation concerns. Others made arguments that might be read either as legal objections or prudential ones.²⁹⁴ Several proponents expressly defended the constitutionality of the resolution.²⁹⁵ Then-Senator Joseph Biden specifically addressed delegation, arguing that the resolution included sufficient parameters to satisfy the nondelegation doctrine:

I am confused by the argument that constitutionally we are unable to delegate that authority. Historically, the way in which the delegation of the authority under the constitutional separation of powers doctrine functions is there have to be some parameters to the delegation . . . . But as I read this grant of authority, it is not so broad as to make it unconstitutional for us, under the war clause of the Constitution, to delegate to the President the power to use force if certain conditions exist. . . . [C]onstitutionally, this resolution meets the test of our ability to delegate. It is not an overly broad delegation which would make it per se unconstitutional, in my view.²⁹⁶

Beyond the legislative debate, the 2002 force resolution generated a rare judicial opinion on the war power nondelegation issue. After the resolution passed, a group including members of the armed forces and their relatives and members of Congress sued President Bush, seeking to enjoin him from initiating war.²⁹⁷ One of the plaintiffs’ claims was that the resolution unconstitutionally delegated Congress’s power to declare war.²⁹⁸ The district court dismissed the suit and the First Circuit affirmed, holding that the dispute was unripe and “[did] not warrant judicial intervention.”²⁹⁹ However, it also addressed the nondelegation argument:

In this zone of shared congressional and presidential responsibility, courts should intervene only when the dispute is clearly framed. An extreme case might arise, for example, if Congress gave absolute discretion to the President to start a war at his or her will. Plaintiffs’ objection to the October Resolution does not, of course, involve any such claim . . . . The mere fact that the October Resolution grants some discretion to the President fails to raise a sufficiently clear constitutional issue.³⁰⁰

The court rejected the nondelegation argument for several reasons. First, it treated war power as “shared between the political branches,” in contrast to many other Article I legislative powers.³⁰¹ Thus it apparently rejected the premise that war-initiation power is exclusively vested in Congress, or perhaps it recognized that war-initiation power is not always so easy to separate cleanly from war-waging or other foreign affairs powers. Second, citing Zemel v. Rusk (which had cited Curtiss-Wright for this proposition), it noted that “the Supreme Court has also suggested that the nondelegation doctrine has even less applicability to foreign affairs.”³⁰² It adopted the common assumption that war power is a subset of foreign relations powers for delegation purposes, and that within that subset, broader delegation is constitutionally permitted. Third, it rebutted the argument that Congress had relinquished policymaking responsibility to the executive branch. “Nor is there clear evidence of congressional abandonment of the authority to declare war to the President,” the court said. “To the contrary, Congress has been deeply involved in significant debate, activity, and authorization connected to our relations with Iraq for over a decade, under three different presidents of both major political parties, and during periods when each party has controlled Congress.”³⁰³

At the time of this writing, Congress is actively considering the repeal of the 1991 and 2002 Iraq force authorizations.³⁰⁴ The fact that they remained on the books for years after the overthrow of Saddam Hussein’s regime, as well as the withdrawal of U.S. combat forces from Iraq, also means that they continued to operate as possible delegations for resuming conflicts or initiating news ones in and around Iraq.³⁰⁵

2. The 2001 AUMF

Congress’s broadest force authorization may be the one following the terrorist attacks of September 11, 2001, which remains in effect. It authorizes the President to use

all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons.³⁰⁶

It specifies a purpose—to prevent further terrorist attacks by those categories of target—but it names no specific enemy or duration. It requires the target to have some nexus to the September 11 attacks but gives the President wide latitude to determine who—individuals, groups, or states—comes within that scope.³⁰⁷

Unlike other modern war power delegations, the United States had been directly attacked on September 11. Even those who interpret the Constitution as lodging war-initiation decisions exclusively in Congress generally recognize an implicit exception for repelling invasions or attacks. So, although the 2001 AUMF is sweeping, at least part of its scope may be understood as recognizing preexisting presidential powers to respond to attacks.³⁰⁸ Presumably the reasoning applies to al Qaeda (the actual perpetrators), but defining that group’s organizational and geographic boundaries and determining whether presidential power also applied against, for example, Afghanistan or other nations or entities for harboring al Qaeda, are complicated matters. Thus, the authority granted the President to use force against those not already covered by the President’s constitutional power to respond to direct attacks was potentially quite broad, especially if the nexus requirement is interpreted loosely.

Nondelegation concerns were barely raised, if at all, in Congress or commentary when the AUMF was hurriedly enacted. A few members of Congress indicated at the time that they believed that this resolution was crafted more narrowly than the Gulf of Tonkin Resolution, to avoid serving as a “blank check,” but they did not explain how so.³⁰⁹

Although nondelegation objections were inaudible in 2001, some critics of the 2001 AUMF and proponents of amending it have more recently raised such concerns. As with the Gulf of Tonkin resolution, expansive interpretations by successive administrations—including applying it in countries far beyond Afghanistan and against new terrorist groups like the Islamic State—probably contributed to a view that at minimum Congress should name specific enemies.³¹⁰ In response to academic proposals to update the 2001 AUMF to allow the President to add new terrorist groups to its coverage, some commentators objected that doing so would skirt constitutional requirements. As two scholars put it:

The proposal to bypass Congress and instead delegate such future—and momentous—decisions to the President lacks anyhistorical precedent, and for good reason. It is Congress, not the Executive, that is given the authority under our Constitution to declare war. As our Founding Fathers understood well, an authorization to use military force is a measure that should be undertaken solemnly, after public debate and with buy-in from representatives of a cross-section of the nation, based upon a careful and deliberate evaluation of the nature of the specific threat. It should not be an ex antedelegation to the President to make unreviewable decisions to go to war at some future date against some as-yet-unidentified entity.³¹¹

Note the echo of arguments from earlier eras, that there is something uniquely problematic constitutionally about delegating war-initiation power, due to its special character.

As during the Cold War, broad legislative delegations were widely accepted in the post-Cold War period as an appropriate mode of exercising war power. Still, the nondelegation objection never fully went away.

V. SUMMARY AND IMPLICATIONS

The historical record laid out in previous Parts yields several significant and surprising points about history, doctrine, and legal reform in the field of war power. As to history, we conclude that—contrary to common assumptions—the originalist or historical case for broad war-initiation delegation is weak. At the same time, however, that history does not support the opposite position, that Congress’s war power is essentially nondelegable at all. Throughout much of American history, both political branches often treated war initiation as constitutionally distinct, but not so consistently to alone justify either of those positions. Modern war power delegation practices arose in the 1950s in response to geostrategic imperatives of the Cold War, but also, importantly, against a background expansion in the exercise of unilateral presidential power to use force.

Moreover, the mixed historical record shows that treating “foreign affairs delegation” as a special constitutional category is problematic. Rather, it points in favor of disaggregating that category, and even disaggregating the sub-category “war powers delegation.” The sparse record of war-initiation delegations prior to modern times also highlights the immense practical stakes of this issue as well as the varied and evolving strategic rationales behind broad delegations. In that way our focus on how Congress exercises its war power adds new dimensions to familiar accounts of whether Congress has done so. And as to legal reform, that historical record raises important questions about calls for restoring Congress’s traditional role in initiating war.

A. The Historical Development of War Power Delegation

This Article’s account of war power delegations suggests at least three conclusions about relevant constitutional history. First, the founding era has relatively little definitive evidence to offer on the topic, particularly for those searching for affirmative support for either broad war power delegation or near-absolute war power nondelegation. The drafters and ratifiers seem not to have discussed the matter directly.³¹² Although some scholars suggest that war power (and other foreign affairs powers) was seen at the time as more delegable than domestic lawmaking power, the leading specific defense of this suggestion relies principally upon extrapolation from a single obscure exchange in the Convention debates, with little if any confirmation in subsequent practice or commentary.³¹³ And to the contrary, at least some key figures of the time emphasized the need to place war-initiation decisions in Congress specifically to check the President.³¹⁴ The influential idea at the founding that decisions to start wars should rest with Congress, because Presidents might be too tempted toward war, is in considerable tension with unconstrained delegations of that power. ³¹⁵ Overall, though, originalist-oriented analysis of the founding era seems unlikely to generate specific conclusions on the delegability of war power, making this particular issue difficult to separate from the larger debate over Congress’s power to delegate its constitutional powers more generally.³¹⁶

Second, broad delegations of war-initiation power were surprisingly rare in historical practice prior to the Cold War. The 1798 Quasi-War statutes, often identified as key precedents for war power delegations, were actually quite narrow and incremental, sharply limiting the President’s ability to expand the naval conflict into a larger war.³¹⁷ Moreover, they were infrequently repeated. After the Quasi-War, no significant foreign conflict was initiated pursuant to delegated power until Vietnam.³¹⁸

While early Congresses authorized hostilities on a few now-obscure occasions in which Presidents ultimately chose not to use force, each of these has limitations as clear precedent for broad delegation. The 1811 No-Transfer Act was conditioned on the occurrence of specific events. The 1839 authorization concerning the Maine border involved defense of specific disputed territory under potential military threat from a hostile power. The 1858 Water Witch authorization also depended on specific events and likely contemplated a low-level use of force.³¹⁹ And those examples have generally received little scholarly or lawyerly attention, probably because they were never activated: Presidents did not invoke the delegated authority to use force because the facts on which they were conditioned did not occur.³²⁰ Indeed, none of the nineteenth-century acts just mentioned even appears in a recent Congressional Research Service compilation of historical authorizations to use military force.³²¹

Moreover, during the nineteenth century, Congress rebuffed Presidents Jackson and Buchanan when they requested delegated authority to use force, amid arguments (among others) that such delegations were constitutionally impermissible.³²² For example, the Water Witch delegation was offset by Congress’s subsequent refusal to grant Buchanan wider authority to use force in Mexico and Central America. The 1839 Maine authorization came only a few years after Congress refused Jackson’s request for force authorizations against France and Mexico.³²³ And part of the Quasi-War debate involved authorization for the President to establish a Provisional Army, in which the analogous delegated power was sharply circumscribed in response to nondelegation concerns.³²⁴ So, war initiation was sometimes—but not consistently—treated as a special case for which broad delegation was impermissible. In sum, there is little historical practice to support broad delegations of war-initiation power prior to the Cold War, although a somewhat better case might be made for a limited practice of narrow delegations, particularly ones tied to specific circumstances or events.

In contrast, broad delegations of military powers were much more common in related areas. For example, all of Congress’s formal declarations and other official recognitions of a state of war contained essentially unlimited authorizations for the President to choose ways of fighting the war.³²⁵ Similarly, as to suppressing insurrections and law enforcement, Congress made open-ended authorizations with less concern or debate.³²⁶ Thus, if anything the early historical record suggests that war-initiation delegation was an area of concern—even if the doctrinal limits were unclear and contested.

The historical record of war-initiation delegation spotlights another less-obvious reason that its early practice was more contested than delegation of war-waging powers. Whereas today war-initiation power is usually seen as a core foreign affairs issue, earlier it was viewed as straddling both foreign and domestic affairs. Madison, exemplifying concerns among some constitutional architects, observed that “[w]ar is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few.”³²⁷ When Justice Nelson, dissenting in the Prize Cases, argued that Congress’s war-initiation power cannot be delegated, he did not appeal to grave foreign policy consequences; he cited the effects on the “business and property of the citizen.”³²⁸ As one modern scholar puts it, even today “[t]he transition from peace to war and back again fundamentally alters many legal relationships, whether they are privately ordered through contract or publicly ordered through statutes, common law doctrines, treaties, or even the Constitution.”³²⁹ Historically, it was as much the domestic implications of war initiation as the foreign ones that gave opponents of its delegation pause.³³⁰

A third conclusion about constitutional history in this area is that the pivotal period for war power delegation was the early Cold War, after which one might argue that the practice reflected a modern “historical gloss” on the Constitution.³³¹ In a relatively short period of time, Congress passed a series of force authorizations granting or acknowledging broad presidential discretion as to whether (and sometimes even where and against whom) to begin hostilities: the Formosa resolution (1955), the Middle East resolution (1957), the Cuba resolution (1962), and the Gulf of Tonkin Resolution (1964).³³² Nothing like these authorizations had occurred previously. Yet, at the time, they were largely uncontroversial, passing by wide margins with only isolated objections on nondelegation grounds. The Gulf of Tonkin Resolution became controversial later, with the growing unpopularity and inconclusiveness of the expanded Vietnam War, and with that controversy came a rise in political and scholarly appeals to constitutional nondelegation principles.³³³ But those objections faded as the United States withdrew from Vietnam and the Cold War was replaced by concerns over terrorism and rogue regimes.³³⁴

The most evident explanation for this shift is geostrategic. To be sure, the Supreme Court gave comfort through its prior Curtiss-Wright decision, indicating reduced constitutional concern about delegation in foreign affairs generally.³³⁵ But the fundamental changes presaging the new regime of war-initiation delegation were the rise of enduring Cold War military and ideological competition, the U.S. emergence as a global superpower with a worldwide ring of military bases and defensive alliances, and the advent of nuclear weapons. These new and dire circumstances underlay a broad consensus that Presidents needed powers to respond to global emergencies quickly and with a broad range of options. The constant military mobilization and sense of emergency muddied the distinction between war-initiation and presidential commander-in-chief activities, and the obsolescence of formal war declarations in international law further blurred it. Those conditions drove not only new thinking about delegation, but also new acceptance of presidential war powers unilateralism, as reflected in Korea and Cuba.³³⁶

Thus, while the 1955 Formosa authorization was a significant step-up from previous cases in the breadth of delegation, it occurred at a time when many officials in both political branches believed that security imperatives in the Cold War required interpreting Article II of the Constitution to allow the President to defend distant American interests from the Communist bloc. Only a few years earlier, President Truman took the United States into the Korean War without express congressional approval. Although Eisenhower, who had a narrower view of presidential powers, requested the Formosa authorization, he received at least as much congressional pushback on the grounds that he did not need it to use force as on the grounds that it granted too much discretion.³³⁷ These developments bring us to the modern view in which war power delegations are relatively well accepted with relatively little understanding of their origins.

In sum, although on their face congressional force authorizations over time included broader delegations, these resolutions were passed in the context of broader understandings and prevailing practice of executive unilateralism. War power delegation may generally look broader over time in absolute terms, but so do background presidential powers. Perhaps one might attach to Cold War resolutions a historical gloss in favor of delegation, but those background assumptions about independent presidential powers and the perceived need at all for congressional authorization at that time render unclear whether the political branches understood that they were systematically engaging in novel legislative delegations. Indeed, as pointed out in Part IV, that growth in unilateral presidential powers has largely obscured the nondelegation questions lurking below.

B. Doctrinal Implications

This section considers the modern doctrinal implications of the foregoing history. We suggest at least four.

First, for those who would revive a strong version of the nondelegation doctrine, war power delegations are not so easily distinguished from domestic legislative delegations. As discussed, some judges and scholars who seek such a revival on originalist and structural grounds suggest that it would not extend to war alongside other foreign affairs powers.³³⁸ Our account calls that suggestion substantially into question; at minimum it should caution against assuming that such a carve-out is easy to justify. As described, originalist and early post-ratification evidence for broad war-initiation delegations is quite thin. There is little basis for assuming that the founders were less concerned about war power delegations than they were about other delegations (and some evidence that they would have been more concerned). And prior to the 1950s there was essentially no practice of broad delegation of the decision to go to war. The originalist-driven project to revive the domestic nondelegation doctrine may necessarily entail grappling with war power delegations, however much some of its advocates might wish to avoid that.

Second, the historical record cautions against treating war-related or military-related delegations as a single category. Longstanding practice indicates much greater acceptance of some kinds of broad delegations: delegations as to the method of fighting wars, and as to matters of law enforcement and suppression of domestic insurrection.³³⁹ For example, starting with early force authorizations after the Quasi-War, including the 1802 Tripoli resolution and every formal war declaration thereafter, Congress delegated to the President broad discretion regarding how to use military force. Importantly, these are areas in which the President is widely believed to have substantial independent constitutional power as a result of the President’s constitutional status as commander-in-chief and head of the executive branch.³⁴⁰ “Some delegations have, at least arguably, implicated the president’s inherent Article II authority,” noted Justice Gorsuch in Gundy. He continued: “The Court has held, for example, that Congress may authorize the President to prescribe aggravating factors that permit a military court-martial to impose the death penalty on a member of the Armed Forces convicted of murder—a decision that may implicate in part the President’s independent commander-in-chief authority.”³⁴¹

In contrast, war-initiation power—much of which was widely thought, at least in the early Republic, to be vested exclusively in Congress—lacks a similar, long-running historical pattern of broad delegation. Relatedly, to the extent there is historical precedent for delegation of war-initiation power, it involves (prior to the Cold War) specific and limited delegations rather than broad open-ended ones. There is not simply one blanket category of military- or war-related powers for which delegability was historically treated and practiced in the same way.

Third, the above considerations suggest a possible path for limited revival of nondelegation principles in war power debates and adjudication, namely, through interpretation of force authorizations’ scope. To be clear, we are not arguing that such delegation in the modern era is unconstitutional, nor do we think courts are likely anytime soon to address this issue, let alone to hold so. Delegation might be defended on grounds other than originalism and history, and at this point, recent practice has ingrained broad delegations not just as an available option for Congress but even as the preferred option for those who believe that Congress must authorize war or force. However, well short of finding them unconstitutional, legislators, judges, and other legal actors who place great weight on early historical delegation practice might be inclined to read modern force authorizations narrowly.

For example, issues have arisen with respect to the scope of the 2001 and 2002 AUMFs: Presidents have sought to use the 2001 AUMF against entities such as the Islamic State, with only tenuous relationships to the 9/11 attacks, and to use the 2002 AUMF regarding Iraq to authorize force against Syrian and Iranian targets.³⁴² The constitutional history of delegation suggests that if courts were ever to reach the issue, they might instead read these authorizations more narrowly, similar to the way courts have begun to read ambiguous domestic delegations narrowly, as not encompassing important matters not clearly within the contemplation of the delegating Congress.³⁴³ Much like the Supreme Court held that it would not read a statute to delegate to the Environmental Protection Agency power to decide “major questions” of greenhouse gas regulation absent a clear statement by Congress of that intent,³⁴⁴ so too courts could reason from the historical record that force authorizations should be read narrowly absent a clear legislative statement.³⁴⁵

Of course, courts are likely for many reasons—including remedial problems and concerns about comparative expertise—to avoid this issue and treat it as non-justiciable.³⁴⁶ The wisdom and practicality of such an interpretive rule is beyond this Article’s scope, and it would depend on many other factors besides history. Ultimately this will likely remain a constitutional issue for the political branches to wrestle with outside of courts. But regardless of where the issue is debated and decided, the historical record—especially the founding-era concerns about this particular power and the early practice of specific and limited delegations, to the extent war powers were delegated at all—could be used to support such an interpretive approach.

One might respond to these first three doctrinal points by arguing that the President has at least some independent power to use military force, so—for the purposes of constitutional delegation analysis, and perhaps also for purposes of interpreting force authorizations—war-initiation is to some extent an overlapping set of shared powers among the political branches. But even so, assuming there is at least some zone of exclusive congressional power, the question remains how delegation operates in that zone. As noted, this Article assumes the existence of such a zone. We nevertheless acknowledge that the line separating that zone is not a bright one, and that is also among the reasons that courts are likely to regard this issue as nonjusticiable.

Finally and more generally, the above account indicates the importance of disaggregating the category of foreign affairs delegations. Since Curtiss-Wright, courts and commentators have discussed a generalized category of foreign affairs powers that (it is said) may be more easily delegated.³⁴⁷ The history of war power delegations shows that this cannot be so easily assumed. As discussed, even within the foreign-affairs sub-category of military or war-related powers, some powers were historically regarded as more readily delegable than others. By extension, it seems inappropriate to generalize about delegability of foreign affairs powers. Some foreign affairs powers may indeed be readily delegable—particularly if they are associated with independent presidential powers, or with longstanding practice of congressional delegations. Others may not be, perhaps because—like war-initiation power—structurally Congress was designed to play a checking role and longstanding practice is not supportive of delegation. Specific types of foreign affairs delegations should be assessed individually rather than in general categories.

The foreign-domestic distinction in nondelegation law has held little significance in practice since Curtiss-Wright because even in domestic cases, courts have generally upheld delegations to the President under very deferential review.³⁴⁸ However, the idea that the Constitution permits broader delegation in foreign than domestic affairs could become crucial if courts and the political branches were to apply the nondelegation doctrine more strictly, as some Justices say they would. In Gundy, for example, Justice Gorsuch (joined by two other Justices), signaled that expansive foreign affairs delegations might survive his stricter nondelegation analysis.³⁴⁹ Justice Thomas elsewhere similarly suggested that broad foreign affairs delegations might be more permissible.³⁵⁰ Although, again, courts will likely continue to treat war-initiation disputes as nonjusticiable,³⁵¹ a number of scholars have predicted that judges applying a stricter nondelegation doctrine would likely continue to carve out foreign affairs or national security generally for different treatment.³⁵² Ultimately, delegation of war-initiation may still be constitutionally justified and defended on functional or other grounds, but the history of war power delegation cautions against broad-gauge categorical approaches to foreign affairs as a whole.³⁵³

C. Strategic Significance of War Power Delegation

The historical record also gives reason to think that the question whether Congress may delegate power to initiate major war has arguably been more consequential than whether Congress must authorize major war (defined loosely as ground wars with immense costs to the United States³⁵⁴). The former issue gets almost no attention today and becomes critically important if one believes the answer to the latter is yes. Apart from the Korean War, the President has always requested and received congressional approval to launch major wars. Presidents have not always regarded this step as necessary, but they have done so. Counterfactual history is of course difficult, but it is hard to show past major wars in which a constitutional requirement of congressional approval would have made a difference.

It may be easier to identify situations where a requirement that Congress actually decide to initiate war might have influenced the outcome or timing. For example, Eisenhower believed that effectively deterring Chinese attacks on Taiwan in 1955 required diplomatic brinksmanship that in turn required congressional pre-approval to use unlimited force. At least in Eisenhower’s view, delegated war power reduced the likelihood of war compared to seeking a decision by Congress after a Chinese provocation. Requiring Congress to expressly initiate war rather than delegate the decision might reduce or delay war in other ways. In the Persian Gulf War, the Senate passed the 1991 resolution granting the President an option to initiate war by only a narrow 52-47 margin. Would Congress have passed a resolution firmly deciding to initiate war, if it could not constitutionally delegate that politically difficult decision to the President? Perhaps not, or perhaps only after diplomacy was given more time. Similarly, had Congress been required to decide on war with Iraq in 2002–2003, we wonder whether Congress might have scrutinized more carefully the intelligence about Iraq’s alleged weapons of mass destruction. It is impossible to prove the impact of such a requirement (compared to an option to delegate), but it is fair to speculate that war decisions might have played out differently or been slowed. And if merely slowing a decision for war seems insubstantial, remember that it is among the reasons most often cited for lodging war power in Congress to begin with.

The historical record also reveals that how Congress exercises its war power, specifically its choice to delegate decision-making on war, has been of great strategic importance—but for different reasons over time. That episodic history can be understood as efforts by the political branches to wrestle with new foreign policy dilemmas that did not fit neatly with a requirement or practice that Congress itself make the final decision on military intervention.

One obvious rationale for war power delegation is the generic rationale behind many legislative delegations: to manage complexity. To deal flexibly with complicated and uncertain situations, Congress often delegates substantial authority to the executive branch to implement policy within legislative parameters. War power delegations since World War II can be understood in similar terms, as recognition that fast-changing geopolitical conditions and the President’s simultaneous exercise of other military, diplomatic, and economic powers favor giving the President flexibility on whether and when to use force or initiate war. Indeed, although historically critics of war power delegation were generally concerned about presidential power, the practical impact of strict nondelegation—that is, giving Congress only a stark choice between deciding to use force or not, rather than allowing it to authorize the President to exercise some discretion—might actually have been more presidential unilateralism. As the U.S. government has dealt with a wide range of security crises, war power delegations may also thus reflect adaptive, pragmatic advantages of flexibility in how Congress legislatively exercises its war power.³⁵⁵

Historically, however, war power delegation has served as a device for handling various specific strategic challenges in addition to managing complexity. That history is especially useful to those who would justify broad war power delegation on functional grounds. The narrowly crafted 1811 No-Transfer Act involved special need for secrecy, for example. The UNPA involved delegation to solve particular credibility challenges for formal collective security arrangements that would have been unimaginable to the founders. Another new challenge after World War II was extended deterrence, or the credible threat of force to deter attacks on allies, particularly in the Eisenhower Administration.³⁵⁶ In the UNPA and Eisenhower-era force resolution episodes, war power delegations were intended to signal policy certainty, not highlight policy discretion. That dilemma of squaring credible commitments to use force with congressional control of war initiation was also partially obviated by a shift in practice from congressional delegation to executive unilateralism. As explained next, efforts to roll back presidential war powers will bring some of these dilemmas back to the fore.

D. Implications for War Powers Reform

Finally, the historical record of war power delegation—especially questions about its acceptance at the founding and the thin body of practice since then—has implications for war powers reform. Reformists often pitch their calls as “restoring” Congress’s proper constitutional role in war initiation, but the historical record raises questions about what interbranch arrangements reformists are usually calling for a return to. For those who advocate reversion to exclusive congressional control over war initiation, it also raises tough questions about Congress’s ability to delegate discretion through future force authorizations.

Those advocating tighter congressional control of war initiation, whatever their political stripes, often appeal to originalism. In advocating reforms to the 1973 War Powers Resolution, for example, legislative sponsors often talk of restoring the original constitutional framework, in which Congress wielded exclusive control over decisions to initiate war.³⁵⁷ The core of many war power reform proposals is to add teeth to the requirement that Congress must authorize major uses of military force. To reformists, it is usually assumed not just that a congressional resolution delegating power to use force is constitutionally sufficient, but that it represents the gold standard of congressional war power primacy. Note, also, that a similar view is currently shared by some members of Congress who propose (much like Eisenhower in 1955) to authorize the President in advance to use force against China to protect Taiwan³⁵⁸—a scenario that could entail large-scale war.

Such proposals may be normatively attractive, but if we take reformists’ appeal to originalism seriously, that commitment may prove more than reformists think. It is not clear that a forward-looking delegation of authority to use force would have satisfied constitutional requirements for how Congress exercised its exclusive war powers at the founding. Whereas today, requiring an express congressional force authorization for any major hostile use of armed force is generally seen as fully restorative of Congress’s powers as they were originally understood, our findings show that early understandings were uncertain—not uncertain in the way commonly discussed, as to whether Congress’s powers were exclusive, but uncertain as to how Congress was required to exercise those exclusive powers.

Our analysis suggests that those advocating a return to greater exclusive congressional war power should also grapple with whether there are any constitutional limits to its delegation. And in doing so, they would simultaneously have to consider how the strategic imperatives discussed in the previous section will continue often to push in favor of broad delegation.

CONCLUSION

This Article’s chief aim has been to describe the historical evolution of war power delegation from the founding era to the present. This account is interesting in itself, as it undercuts a common assumption that broad war-initiation delegations of the type used in modern practice are a longstanding feature of the constitutional landscape. To the contrary, the Article shows that from the Constitution’s earliest years until the mid-twentieth century, war-initiation delegations were rare and typically specific and conditioned on particular events. Broad delegations became more common only after World War II, first in the Cold War and then continuing to modern times in the conflicts with Iraq and the war on terrorism. The story of war-initiation delegations is a story of constitutional change.

The Article takes no firm position on the ultimate implications for modern war powers doctrine. That depends on one’s view of constitutional interpretation more generally—originalists, traditionalists and functionalists may, for example, draw different conclusions. At minimum, though, it is more difficult than often supposed to defend the modern approach to war initiation on grounds of longstanding historical practice. The historical record also spotlights an otherwise-obscured question about common calls to respect Congress’s original, exclusive war power: namely, whether originally there were constitutional limits to its delegation.

Our analysis also yields insights for broader debates about nondelegation. The Supreme Court has indicated that delegation may be categorically more appropriate in foreign affairs matters, and modern proponents of reviving the nondelegation doctrine have suggested that the revival might exempt delegation of foreign affairs powers. Especially for nondelegation revivalists who take originalism seriously, however, this Article cautions against categorical treatment of foreign affairs delegations, and even against categorical treatment of war-related delegations.

96 S. Cal. L. Rev. 741

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Michael D. Ramsey*

* Warren Distinguished Professor of Law, University of San Diego School of Law.

Matthew C. Waxman†

† Liviu Librescu Professor of Law, Columbia Law School. The authors thank Scott Anderson, Curtis Bradley, Harlan Cohen, Kristen Eichensehr, Jane Manners, Michael McConnell, and Kelsey Wiseman, as well as participants in the Duke-UVA Foreign Relations Law Workshop convened by Professors Bradley and Eichensehr, for their comments on earlier drafts. The authors thank Tanner Larkin, Christopher Malis, Austin Owen, Ruth Schapiro, Alec Towse, and Josh Tupler for outstanding research assistance, and they thank the Martin and Selma Rosen Research Fund for support.

Self-Defense Exceptionalism and the Immunization of Private Violence

July 2023April 2024Eric Ruben*

After the high-profile trial of Kyle Rittenhouse, the parameters of lawful self-defense are a subject of intense public and scholarly attention. In recent years, most commentary about self-defense has focused on “Stand Your Ground” policies that remove the duty to retreat before using lethal force. But the reaction to Rittenhouse’s case reflects a different, more extreme way that the law governing defensive force is changing. In particular, advocates and legislators say that private citizens like Rittenhouse who exercise self-defense should be entitled to immunity—an exemption from prosecution—giving them an extraordinary procedural benefit not attaching to other defenses that are adjudicated at trial. As this Article reveals, this effort to transform self-defense into something exceptional within criminal law began more than a decade ago in the shadows of Stand Your Ground. One-quarter of U.S. states have already enacted laws providing for self-defense immunity.

This Article examines this fundamental yet understudied shift in self-defense law. It shows how the concept of immunizing defensive force is foreign to the Anglo-American legal tradition as well as settled principles of modern criminal law and procedure, including the exceedingly narrow role of immunities. It tells the story of how self-defense immunity arose not as part of the broader criminal justice reform movement, but rather at the behest of the movement to insulate defensive gun use from liability. And it demonstrates the costs of treating self-defense as an immunity, such as increasing violence, diminishing the institution of the jury, delegitimizing criminal law outcomes, and undermining judicial economy. After exposing the unreasoned rise and inevitable costs of self-defense immunity, this Article concludes that self-defense should remain an affirmative defense to criminal charges rather than immunize a defendant from being prosecuted at all. Self-defense reform should move in lockstep with other criminal law defenses so as to avoid the societal harms that result from immunizing defensive violence.

INTRODUCTION

On August 25, 2020, seventeen-year-old Kyle Rittenhouse traveled to Kenosha, Wisconsin, with an illegally obtained AR-15–style rifle in the wake of the shooting of Jacob Blake by a police officer.¹ Rittenhouse said he went heavily armed to provide medical aid and protect property, albeit strangers’ property, during racial justice protests and unrest following yet another police shooting of a Black man.² Instead, he shot three men during altercations, killing two of them.³ Rittenhouse was charged with crimes including murder,⁴ and in his defense he asserted self-defense: he feared that the men would disarm him and use his own rifle against him unless he shot them first.⁵

Rittenhouse’s case was closely watched and controversial, splitting the nation into diametrically opposed camps regarding the appropriateness of his conduct. It also raised difficult factual and legal questions, including whether he provoked the confrontations and thereby negated the lawfulness of his defensive force.⁶ At the end of a two-week trial at which dozens of witnesses testified, a jury deliberated for three days and returned a verdict of not guilty.⁷ The outcome should have pleased those who supported Rittenhouse’s conduct that summer night. Instead, a common reaction was, as former President Donald Trump put it, that Rittenhouse “shouldn’t have been prosecuted in the first place.”⁸

If that sentiment were simply a feature of modern political rhetoric, it might be undeserving of close scrutiny. Indeed, the politics of self-defense shone brightly after the Rittenhouse trial. U.S. Representative Marjorie Taylor Greene even introduced a bill to award Rittenhouse a civilian’s highest congressional tribute, a Congressional Gold Medal, for his “courageous actions.”⁹ Several Republican politicians invited Rittenhouse to intern in their offices.¹⁰ Just days after the verdict, he was welcomed at Trump’s Mar-a-Lago Club in Florida.¹¹

But this Article shows how the notion that people “should not fear exposure to criminal prosecution when they use firearms to defend themselves and their homes” is more than rhetoric.¹² Rather, it is the foundation for an effort to grant an exemption from prosecution to those who, like Rittenhouse, claim self-defense in defending against criminal charges. After Rittenhouse’s acquittal, one advocate penned “Kyle’s Law” to cement the exalted status of self-defense.¹³ The proposed statute would alter the law in various ways, including effectively immunizing lawful defensive force from prosecution altogether.¹⁴ As it turns out, more than one-fourth of U.S. states have already done just that,¹⁵ and the trend is likely to continue.¹⁶

In the past decade, legal scholarship has explored “Stand Your Ground,” or the removal of the common law duty to retreat before using lethal defensive force in public.¹⁷ That literature shows how Stand Your Ground interacts with an expansion of gun rights in a way that can lead to more violence and exacerbate existing patterns of discrimination in the criminal justice system.¹⁸ Articles have likewise explored additional features of the intersection of criminal law, self-defense, and gun rights.¹⁹ And legal scholars are starting to explore whether self-defense law might be bolstered in light of changed circumstances—especially the proliferation of gun carry—to limit the unnecessary loss of life.²⁰

Yet the notion that self-defense is exceptional and “deserves” to be immunized, as one legislative witness put it,²¹ has evaded close scrutiny. Articles about Stand Your Ground have acknowledged what Cynthia Ward termed the “curious beast” of self-defense immunity as well as the “confusion” it invites.²² However, self-defense immunity warrants a sustained analysis in terms of how it began as an adjunct to the gun rights movement and how it fits within the criminal justice system today. That, in turn, calls for an examination of a more general topic that similarly has received little attention: the procedural treatment of criminal law defenses and why prosecutorial immunities are so few in number. To exempt a category of defendants from the ordinary criminal process is profound, bestowing “a far greater right than any encompassed by an affirmative defense, which may be asserted during trial but cannot stop a trial altogether.”²³ Examining why the criminal law is generally opposed to granting an exemption from prosecution is an important, understudied part of the inquiry.²⁴

This Article proceeds in three parts. Part I shows how justifications for otherwise criminal conduct, like self-defense, have traditionally been adjudicated: as affirmative defenses to criminal charges. Some have argued that immunizing self-defense is simply a return to past protections that have been lost in recent times.²⁵ But those engaging in private violence have always been exposed to criminal prosecution and trial. The argument that self-defense exceptionalism is rooted in tradition is unsupported.

Part I also shows how modern pretrial criminal procedure is consistent with the historical antecedents. The formal process is overwhelmingly structured to bring cases forward to trial, even if few cases get that far.²⁶ Pretrial screening is largely geared toward questioning the basis for the charged offense, not adjudicating potential defenses.²⁷ The criminal law makes exceptions for a narrow set of pretrial matters—narrower than in the civil context. The scant prosecutorial immunities and their narrow justifications can be linked to the criminal law’s aims and distinctive character, which are especially protective of public prosecutions. The exceptions that receive prosecutorial immunity tend to be fundamentally different than self-defense in both their scope and purpose. In particular, other criminal law immunities benefit narrow classes of defendants and must be addressed ahead of trial to protect distinctive public interests like maintaining foreign relations or preserving the balance of powers.²⁸ Self-defense, in contrast, can be invoked by any defendant and, like a multitude of other defenses,²⁹ can be adjudicated at trial without undermining its role as justifying otherwise unlawful conduct. Moreover, interests served by self-defense law—like maintaining the legitimacy of the legal order—are actually undermined by immunity.

Part II then turns to the next logical question: Why are states now diverging from American legal tradition and standard practices to treat self-defense as something exceptional? The Article traces self-defense immunity from a barely debated and misunderstood change to Colorado law in the 1980s to a primary ambition of gun rights advocates in the 2000s. The resulting legal changes are often characterized as “Stand Your Ground laws,” but that understates the transformation that is afoot. Stand Your Ground relates to just one of many ways that legislators are remaking the law governing defensive force. Indeed, one possible reason why self-defense immunity has escaped close scrutiny is that the typical focus is on the substantive elements establishing what lawful self-defense is, and especially the duty to retreat, while glossing over changes to how self-defense is adjudicated.³⁰

Yet while Stand Your Ground has garnered the most attention, advocates—and especially gun rights advocates—have pursued a deeper goal: insulating defensive gun use from legal oversight to the greatest extent possible. It is hard to overstate the degree to which the quick rise of self-defense immunity is due to lobbying by advocates for one deadly weapon (the gun) that is used in a minuscule percentage of self-defense confrontations.³¹ The loudest voices advocating for immunizing self-defense tend not to be those seeking criminal justice reform generally but rather those seeking to expand gun rights. A National Rifle Association (“NRA”) lobbyist, for example, drafted and led the campaign to institute self-defense immunity in Florida, which then became a model for states across the nation.³² The playbook for transforming self-defense into an immunity mirrors the one used to expand gun rights.³³ The overlap between gun rights and self-defense rights advocacy begs the question of whether any principle other than bestowing a benefit on gun users is guiding self-defense’s transformation from an affirmative defense into an immunity. Part II raises several possibilities, but it finds each too thin to justify such an immense procedural departure.

Part III then explores functional and institutional costs of immunizing private violence. Self-defense immunity sends a signal that people can judge for themselves when to deploy violence in the name of self-protection without exposure to prosecution, thereby encouraging unnecessary violence.³⁴ Meanwhile, by preventing the community, through the jury, from evaluating the lawfulness of defensive force, immunity jettisons the institution best suited for adjudicating self-defense.³⁵ In addition, immunizing self-defense creates an inefficient process by which courts consider the same witnesses and arguments that will be presented at trial during a separate pretrial hearing, setting up the sort of mini-trial that criminal procedure generally disfavors.³⁶

Trials like Rittenhouse’s spark intense disagreement and debate. But such trials are a feature—not a bug—of the American justice system. The Article concludes that policymakers should keep self-defense in its traditional place as an ordinary affirmative defense to criminal charges. Criminal justice reform is desperately needed, but treating private violence as privileged at the behest of gun rights advocates is a perilous path.

I. SELF-DEFENSE AND PRETRIAL CRIMINAL PROCEDURE

As Carl Sagan famously put it: “You have to know the past to understand the present.”³⁷ That maxim applies equally well for modern criminal law. This Part thus explores how self-defense was historically implemented in criminal procedure. It shows how the criminal justice system that the United States adopted from England was “trial-centered, in the sense that the legal system sought to resolve most criminal business at trial,”³⁸ including claims of self-defense. This Part then shows how that treatment continued in modern times until the recent effort to grant pretrial prosecutorial immunity for self-defense. The effort to recharacterize self-defense as an immunity invites a question about how immunities fit within the criminal justice system. This Part closes by addressing that question, showing how and why prosecutorial immunities are few in number and narrowly construed, and how and why their typical rationale does not apply to self-defense.

A. Historical Procedure

In 1841, in People v. McLeod, a New York court considered a habeas corpus petition for a defendant charged with murder.³⁹ The defendant sought his “unqualified discharge” on the basis of pretrial evidence that, among other things, he acted in lawful self-defense.⁴⁰ The court emphatically rejected the “extraordinary” request,⁴¹ noting the “absurdity of such a proposition in practice, and its consequent repudiation by the English criminal courts” whose law and procedure the United States inherited.⁴² Among other things, granting the defendant’s request “would be to trench on the office of the jury.”⁴³ As the court explained, “[a]n innocent man may be, and sometimes unfortunately is[,] imprisoned. Yet his imprisonment is no less lawful than if he were guilty. He must await his trial before a jury.”⁴⁴ That early American understanding of the appropriate time—and the appropriate entity—to adjudicate self-defense was firmly rooted in the English common law tradition.

During the seventeenth and eighteenth centuries in England, after a felony was charged, judges lacked authority to discharge defendants “without further trial.”⁴⁵ This was true regardless of whether the defendant was believed to be justified in engaging in the alleged offense conduct.⁴⁶ In the 1700s, judges began conducting a “pretrial inquiry” that “increasingly took on the trappings of a public hearing, which would ultimately come to be known as the preliminary hearing.”⁴⁷ At such hearings, however, the defense attorney was limited to challenging the prosecution’s case and was not entitled to present the defense’s case.⁴⁸

Classic common law treatises demonstrate how self-defense was just like other defenses in that it was a trial issue, not a pretrial issue. For example, Michael Foster, a judge on the King’s Bench and the author of a widely read treatise published in 1762, observed that the defendant raising self-defense “standeth upon just the same foot that every other Defendant doth: the Matters tending to Justify, Excuse, or Alleviate, must appear in Evidence before He can avail himself of them.”⁴⁹ And the opportunity to introduce that evidence was not until trial: “[W]hether the Facts alledged by way of Justification, Excuse, or Alleviation are True, is the proper and only Province of the Jury.”⁵⁰

Several years after Foster’s publication, William Blackstone completed “the preeminent authority on English law for the founding generation,”⁵¹ in which he explained that “it is incumbent upon the prisoner to make out, to the satisfaction of the criminal court and jury,” any “circumstances of justification, excuse, or alleviation.”⁵² The jury, Blackstone wrote, is “to decide whether the circumstances alleged [regarding self-defense or other affirmative defenses] be proved to have actually existed”; the judge then decides “how far [the proved circumstances] extend to take away or mitigate the guilt.”⁵³

Edward Hyde East, in his influential 1803 treatise, built on Blackstone’s and Foster’s accounts and elaborated on the lack of a pretrial process for asserting self-defense.⁵⁴ He wrote that “the jury alone [is] to decide” on “the truth” of the defendant’s allegations of “justification, excuse, or alleviation,” though the judge could consider such defenses when deciding on bail.⁵⁵ The McLeod case demonstrates that this current continued in the United States into the nineteenth century.⁵⁶ In his 1872 Commentaries on the Law of Criminal Procedure, Joel Prentiss Bishop described how a defendant entering a plea of not guilty at arraignment formally “puts himself upon the country,” or submits to a trial by jury.⁵⁷ The jury therefore remained the primary entity to decide disputed fact issues in criminal cases, including regarding self-defense.⁵⁸

Pretrial processes, like the preliminary hearing and the grand jury, generally did not provide a defendant an opportunity to introduce evidence of any particular defense.⁵⁹ As the 1918 edition of Francis Wharton’s treatise on criminal procedure observed, “the better opinion is that on a preliminary hearing the magistrate is to hold the defendant for trial” when “there is made out a probable case of guilt.”⁶⁰ Similarly, in a proceeding before the grand jury, “it is not the usage to introduce, in matters of confession and avoidance, witnesses for the defense, unless their testimony becomes incidentally necessary to the prosecution.”⁶¹

The notion that self-defense could be adjudicated by a judge before trial thus has no basis in the common law tradition imported from England and implemented in America. The next Section shows how that basic understanding carried forward to modern times.

B. Modern Procedure

In 1971, Indiana passed a statute providing that “[n]o person . . . shall be placed in legal jeopardy of any kind whatsoever” after exercising lawful self-defense.⁶² Armed with that broad statutory language, one defendant sought a pretrial determination of the lawfulness of his claimed self-defense.⁶³ In Loza v. State, Indiana’s highest court recognized the novelty of the proposition before reacting much like the New York court did more than a century earlier in McLeod.⁶⁴ In particular, in order “to prevent absurdity,” the court held that the new law “neither creates a new remedy nor does it alter our procedure in any respect.”⁶⁵ In other words, self-defense remained a trial issue. The Loza court’s understanding was consistent with modern pretrial procedure.

Modern criminal procedure is heavily constitutional,⁶⁶ and an overview of the minimalist pretrial constitutional requirements for defenses (like self-defense) is therefore instructive. Under the Fourth Amendment, police officers must have probable cause before making an arrest,⁶⁷ and an impartial magistrate must review whether probable cause exists if the arrestee is to remain in custody.⁶⁸ The Supreme Court has described probable cause as “a fluid concept” that “requires only a probability or substantial chance of criminal activity, not an actual showing of such activity.”⁶⁹ Admittedly, probable cause is “not a high bar.”⁷⁰

Importantly, moreover, probable cause does not require robust consideration of self-defense, if it requires any at all. The Third Circuit has held that “affirmative legal defenses”—like self-defense—“are not a relevant consideration in [a police] officer’s determination of probable cause.”⁷¹ In contrast, the Second Circuit has held that “a police officer’s awareness of the facts supporting a defense can eliminate probable cause.”⁷² That said, such evidence must be “conclusive” or first-hand,⁷³ and once an officer has probable cause to make an arrest, the officer does not constitutionally have “to investigate exculpatory defenses offered by the person being arrested or to assess the credibility of unverified claims of justification.”⁷⁴ Self-defense is not singled out for special treatment, but rather is treated like any other defense.⁷⁵

Subsequently, once a prosecutor makes a charging decision, there is “no federal constitutional right to any review” of that decision before trial “apart from the grand jury clause of the Fifth Amendment.”⁷⁶ The grand jury, meanwhile, is also guided by the standard of whether there is “probable cause necessary to initiate a prosecution for a serious crime.”⁷⁷ In United States v. Williams,⁷⁸ the Supreme Court held that, notwithstanding the constitutional obligation to disclose material exculpatory evidence to a defendant before trial,⁷⁹ the Constitution does not require prosecutors to disclose substantial exculpatory evidence to the grand jury, including regarding a potential claim of self-defense.⁸⁰ Looking back to the common law history, the Court explained that the grand jury is “an accusatory [body],” not “an adjudicatory body,” and its task is “to assess whether there is adequate basis for bringing a criminal charge.”⁸¹ Historically, “it has always been thought sufficient for the grand jury to hear only the prosecutor’s side.”⁸²

In some jurisdictions, by either law or internal policy, prosecutors are held to a higher standard than the federal constitutional baseline with respect to grand juries.⁸³ However, most such departures only require presenting “evidence that is clearly exculpatory” or “that would exonerate the accused or lead the grand jury to refuse to indict.”⁸⁴ Given the low bar for indictment—again, probable cause⁸⁵—even these jurisdictions stop far short of adjudicating self-defense before trial.

The Federal Rules of Criminal Procedure, which “almost always reflect the basic position adopted in a substantial number of states,”⁸⁶ provide other pretrial procedural steps apart from the grand jury, most notably a preliminary hearing.⁸⁷ Yet the preliminary hearing—consistent with historical practices⁸⁸—focuses on the prosecution’s evidence for the charged offense, and not evidence of self-defense or any other affirmative defense. Again, the standard is probable cause: the prosecutor need only show “probable cause to believe an offense has been committed and the defendant committed it.”⁸⁹ Moreover, the prosecutor gets to decide whether to have a preliminary hearing at all: if the prosecutor secures an indictment before a grand jury, then the defendant has no right to demand a pretrial hearing.⁹⁰

It thus has remained true under conventional criminal procedure that “[i]f a defendant claims innocence or has a defense,” including self-defense, “the proper body to decide the issue is the petit jury.”⁹¹ Recent reform efforts, however, characterize self-defense not as a “defense” but as an “immunity,” calling to mind exceptions to the general rule—a category of traditional immunities and other matters that are adjudicated pretrial. The next Section addresses such pretrial issues in relation to self-defense.

C. Immunities from Prosecution

Recent legislation declaring that self-defense is an immunity from prosecution has led judges and commentators to treat self-defense as a “true immunity” comparable to others.⁹² This classification invites questions about how other prosecutorial immunities operate, why they exist, and whether they share anything in common with self-defense.⁹³

Common immunities from prosecution include diplomatic immunity, judicial immunity, legislative immunity, executive immunity, immunity after compelled testimony, and immunity bestowed on the basis of a plea agreement.⁹⁴ These are “defenses” in the sense that they are asserted by a defendant as a way to avoid a conviction. But their essence goes beyond ordinary defenses because immunities operate to exempt a person from the mandate of the criminal law, not to justify otherwise criminal conduct because of the circumstances surrounding that conduct.⁹⁵ Black’s Law Dictionary cross-references “impunity” in its definition of “immunity,” which similarly denotes an “[e]xemption from punishment.”⁹⁶ The example that Black’s uses to describe impunity relates to diplomatic immunity: “because she was a foreign diplomat, she was able to park illegally with impunity.”⁹⁷ Immunity gets asserted early in the criminal process to head off the prosecution of someone possessing such an exemption.

As such, prosecutorial immunities are a remarkable departure from the ordinary criminal process described above; moreover, they are in tension with a basic, distinctive function of criminal law. Criminal law is traditionally viewed as a means to declare “a formal and solemn pronouncement of the moral condemnation of the community.”⁹⁸ The community’s role in implementing the criminal law—through a public prosecution and jury trial—is intertwined with that function. It is no coincidence that the prosecutor in a criminal case is called “The People” in many jurisdictions.⁹⁹

Prosecutorial immunity dilutes the formal power of the public in assessing an alleged crime, and it thus raises special concerns in criminal law that might exist only to a lesser extent in the civil context, where immunity is sometimes granted, for example, primarily to avoid costs.¹⁰⁰ In the criminal context, immunities tend to be justified by a narrower, more compelling rationale. As a general matter, only when avoiding the criminal justice process is a defense’s entire raison d’être is it exempted from prosecution as an “immunity.” Put differently, the public policies underlying the above-mentioned criminal law immunities necessarily require the avoidance of prosecution and trial.

Consider diplomatic immunity. A key reason why we immunize conduct by foreign diplomats in the United States is to protect American diplomats outside the United States from exposure to foreign court systems.¹⁰¹ There is no way to satisfy that goal through an affirmative defense at trial. Consistent with the purpose of diplomatic immunity, it also does not protect diplomats from sanction upon return to their home countries.¹⁰² Judicial, legislative, and executive immunities are similarly geared to specific policy rationales necessitating avoidance of a trial. Each protects “governmental officials from personal liability arising from their official duties” because of the strong interest in facilitating their ability to serve the public.¹⁰³ The Supreme Court has explained how legislative immunity enables “representatives to execute the functions of their office without fear of prosecutions.”¹⁰⁴ An added component of legislative and judicial immunity is to preserve the balance of power between the three branches of government by insulating legislative and judicial officers from prosecutions by the executive branch.¹⁰⁵ Again, interests that these governmental immunities serve cannot be furthered—and indeed would be undermined—if they were treated as defenses to be proved at trial. The remarkable benefit of immunity is thus granted because of strong public policy arguments that inherently entail a bar to prosecution.

How does self-defense relate to immunities? Self-defense is not about trial avoidance but exculpation.¹⁰⁶ Like other justification defenses and unlike immunities, it can be adjudicated in the traditional way—through trial—without undermining its rationale.¹⁰⁷ Moreover, unlike typical immunities, self-defense furthers interests that are in fact undermined by short-circuiting a prosecution and trial.

T. Markus Funk has identified seven values served by self-defense law: protecting the state’s monopoly on force, protecting the individual attacker’s right to life, maintaining the equal standing between people, protecting the defender’s autonomy, ensuring the primacy of the legal process, maintaining the legitimacy of the legal order, and deterring attackers.¹⁰⁸ Immunity arguably advances the interests in protecting a defender’s autonomy or deterring attackers. But it runs roughshod over other values, especially self-defense law’s dual roles of ensuring the primacy of the legal process and maintaining the legitimacy of the legal order. Both roles underlie the idea that “the authority to punish and condemn” remain with “the liberal state,” not with individual citizens.¹⁰⁹ In his discussion of ensuring the primacy of the legal process, Funk notes that “[t]o the extent possible, . . . the justice system must promote the resolution of disputes in the courts.”¹¹⁰ Immunity, however, dilutes the state’s oversight of defensive violence and, perhaps worse still, undermines the community’s role through the jury to assess the lawfulness of violence—a point addressed in greater depth in Part III. In other words, in contrast to typical immunities, whose purposes areoverall advanced by providing an exemption from prosecution, key values underlying self-defense law are undercut by providing such an exemption.

Immunities, of course, are not the only matters that receive pretrial resolution. Some defenses—like those based on statutes of limitations, double jeopardy, and speedy trial requirements—are also adjudicated in advance of trial. Other issues, like competency to stand trial, also receive pretrial determination. In the effort to implement self-defense immunity, some have analogized self-defense to those other pretrial issues even though they are not technically “immunities.”¹¹¹ Yet these issues, like traditional immunities, protect interests that necessarily call for avoiding trial and thus are dissimilar to self-defense. Statutes of limitations affirm the belief that “[a]fter a period of time, a person ought to be allowed to live without fear of prosecution.”¹¹² Double jeopardy protections are “designed to protect an individual from being subjected to the hazards of trial and possible conviction more than once for an alleged offense.”¹¹³ Speedy trial guarantees mandate “the Government [to] move with the dispatch that is appropriate to assure [the defendant] an early and proper disposition of the charges against him.”¹¹⁴ And resolving competency questions must also happen before a trial since the entire point is to determine the defendant’s “ability to participate meaningfully in the trial.”¹¹⁵

In connection with competency hearings, one exception to the general rule of limiting pretrial criminal matters to those that inherently require pretrial determination involves the insanity defense. Courts tend to draw a clear line between the question of competency to stand trial, which is adjudicated in advance of trial, and insanity at the time of the offense, which is a trial issue.¹¹⁶ As a general matter, therefore, an insanity defense is submitted to the fact finder at trial and is not decided at a pretrial hearing.¹¹⁷ However, such bifurcation is not universally followed. Pennsylvania law, for example, grants a judge the discretion to “hear evidence on whether the person was criminally responsible for the commission of the crime charged” so long as the judge is already conducting a competency hearing.¹¹⁸

In that context, judicial economy might weigh in favor of considering evidence of both competency and insanity at a pretrial hearing. At least one other state—North Carolina—gives courts discretion to hold a pretrial insanity hearing so long as the state consents.¹¹⁹ That exception is highly limited in that courts and prosecutors can override a defendant’s request for a hearing, making it quite different from self-defense immunity.¹²⁰ And in Washington, a defendant may request a pretrial insanity determination, but the statute notes that any acquittal under the statute cannot be used to contest mental health detention—a possibility that distinguishes insanity and self-defense.¹²¹

This Section has set out the limited nature of criminal law immunities and other pretrial matters and offered a normative explanation, rooted in the criminal law’s distinctive role, for that narrow scope. Below, the Article considers additional arguments for and against expanding immunities to include self-defense.¹²² First, however, the Article turns to the story of how self-defense immunity arose in the first place.

II. THE PUSH TO MAKE SELF-DEFENSE EXCEPTIONAL

In light of the American criminal law tradition of adjudicating self-defense at trial, how did self-defense immunity arise? This Part shows how self-defense immunity emerged out of Colorado in 1986, laid dormant for almost two decades, and then became a central component of gun rights advocacy in the 2000s. The Part then analyzes the thin rationales put forward for treating self-defense as deserving of exceptional treatment through prosecutorial immunity.

A. Inauspicious Beginning in Colorado

Accounts of recent self-defense reforms tend to begin with Florida’s 2005 Stand Your Ground legislation.¹²³ Indeed, Florida’s law served as a model that influenced legal changes across the country.¹²⁴ But the first example of a self-defense immunity statute was not Florida’s but rather a last-minute compromise bill from Colorado twenty years earlier.¹²⁵

The Colorado law did not, at first, provide for prosecutorial immunity. Rather, the bill initially added a legal presumption to self-defense law to enhance the scope of lawful self-defense against home intruders.¹²⁶ To be sure, homeowners already had an expanded right to self-defense through the “Castle Doctrine,” which generally removed a person’s duty to retreat before using lethal defensive force in the home.¹²⁷ However, Colorado policymakers wanted to do more, so they borrowed from a California statute that a person confronting a home intruder is legally “presumed” to fear for their life.¹²⁸ That presumption would satisfy one requirement of lethal defensive force—that the defender reasonably perceives a threat of death or serious bodily injury¹²⁹—thereby relieving the defendant of the need to produce evidence of such heightened fear.

Prosecutors objected because they “believed that it would be very difficult, if not impossible, to rebut the presumption in favor of the homeowner.”¹³⁰ There was little public debate regarding the subsequent compromise that became the nation’s first law providing immunity from prosecution for self-defense.¹³¹ Yet the law appears to have imported a civil immunity provision enacted in Colorado in 1982 into the criminal law.¹³²

By way of background, in 1981, a Colorado jury awarded a plaintiff more than $300,000 in damages from a defendant for gunshot injuries incurred while the plaintiff was burglarizing the defendant’s shop.¹³³ The public outcry was swift and the shop owner’s lawyer helped to draft a bill immunizing people like his client from civil damages.¹³⁴ The resulting law barred payouts for personal injuries “sustained during the commission of or during immediate flight from” a felony if the person inflicting the injury reasonably believed that physical force was “reasonable and appropriate” to prevent both injury and the commission of the felony.¹³⁵ The wisdom of such civil immunity is beyond the scope of this Article; more important for present purposes is that it did not address immunity from criminal liability. As discussed above, criminal liability is geared toward vindicating public harms in a way that civil liability is not.¹³⁶ Nonetheless, the criminal immunity bill that later passed in Colorado in 1986 mirrored the earlier civil immunity law. The law provided that a person “shall be immune from criminal prosecution” if the person used defensive force and four conditions were met relating to an unlawful home intrusion.¹³⁷

The 1986 law’s legislative sponsors and the negotiating prosecutors appeared to have different beliefs about what the new law actually accomplished. The sponsors appreciated that they had achieved “greater protection [for defendants] than a presumption for the homeowner as part of an affirmative defense at trial.”¹³⁸ The negotiating prosecutors, in contrast, believed that they gave up nothing. Denver’s district attorney, for example, publicly commented that the “compromise is just a clarification of existing law.”¹³⁹

In that vein, some prosecutors tried to argue in subsequent litigation that the new provision could not possibly grant true immunity for self-defense.¹⁴⁰ Among other things, they pointed out that the provision appears alongside other affirmative defenses in Colorado’s criminal code.¹⁴¹ When the issue reached the Colorado Supreme Court, however, the justices rejected the prosecutors’ interpretation that self-defense remained an ordinary defense to be proved at trial, noting that “[i]t must be presumed that the legislature has knowledge of the legal import of the words it uses.”¹⁴² The plain meaning of “shall be immune from criminal prosecution” in the statute, they concluded, was “to bar criminal proceedings against a person for the use of force under the circumstances set forth” in the law.¹⁴³ In the course of reaching that holding, the justices acknowledged what went unsaid during the legislative hearings: that “the immunity created by [the law] is an extraordinary protection which, so far as we know, has no analogue in Colorado statutory or decisional law.”¹⁴⁴ In fact, immunity for self-defense in criminal cases does not appear to have existed anywhere else in the country.¹⁴⁵

Perhaps because of its unusualness, or because it was an eleventh-hour deal seemingly unrooted in any principle other than compromise, Colorado’s self-defense immunity law was not immediately enacted elsewhere. In 1987, for example, Oklahoma’s governor vetoed legislation similar to Colorado’s, which subsequently passed after the immunity provision was removed.¹⁴⁶ Nonetheless, Colorado’s immunity provision was on the books, providing a template for future efforts.

B. Auspicious Effort by Gun Rights Advocates

The Colorado self-defense immunity law was not instituted at the behest of gun rights advocates or other lobbyists, but rather, it arose as a compromise with prosecutors after a locally elected leader perceived a need for expanding self-defense protections against home intruders.¹⁴⁷ In more recent times, however, gun rights advocates and the NRA in particular have led a campaign to expand not only the right to have and carry guns but also to brandish and shoot them when gun owners feel threatened.¹⁴⁸ Most public attention to this campaign has centered around Stand Your Ground, but looking closely at testimony and commentary reveals a deeper ambition: immunizing defensive gun use from prosecution.

The parallels between the NRA’s lobbying for gun rights and its lobbying for self-defense immunity is striking. Gun rights advocates frequently claim that the right to keep and bear arms is being disrespected in the courts and therefore that the Second Amendment needs more protection.¹⁴⁹ The claim with self-defense is similar: as one gun rights advocate put it, self-defenders are “victimized . . . in court.”¹⁵⁰ The executive director of the NRA’s Institute for Legislative Action lamented that “people who defend themselves are more likely to be charged with crimes and, as the old sayings go, be forced to ‘tell it to the judge’ and ‘let the jury sort it out.’ ”¹⁵¹ That creates a problem, he explained, because “a murder trial puts the defendant at risk of a long prison sentence—or worse.”¹⁵² The NRA lobbyist most directly involved with Florida’s landmark Stand Your Ground bill in 2005 was likewise moved by this notion.¹⁵³ A basic problem, in her view, was that people were “being arrested” and “prosecuted . . . for exercising self-defense that was lawful.”¹⁵⁴

An answer to that feeling of disregard for self-defense was to transform it from an affirmative defense to an immunity. The NRA devised a self-defense immunity law¹⁵⁵ and found legislative sponsors in Florida who agreed with the complaint that, as one put it, “law-abiding citizens” who “protect themselves [are] in a posture that they have to defend themselves from their own government.”¹⁵⁶ The measure passed in 2005 and went even further than Colorado’s, extending prosecutorial immunity to all self-defense—not just self-defense in the context of home invasions.¹⁵⁷ In particular, the law provided that someone using lawful self-defense is “immune from criminal prosecution,” with “criminal prosecution” defined to “include[] arresting, detaining in custody, and charging or prosecuting the defendant.”¹⁵⁸

Immunity from criminal prosecution and civil action for justifiable use of force.—

(1) A person who uses force as permitted in s. 776.012, s. 776.013, or s. 776.031 is justified in using such force and is immune from criminal prosecution and civil action for the use of such force, unless the person against whom force was used is a law enforcement officer, as defined in s. 943.10(14), who was acting in the performance of his or her official duties and the officer identified himself or herself in accordance with any applicable law or the person using force knew or reasonably should have known that the person was a law enforcement officer. As used in this subsection, the term “criminal prosecution” includes arresting, detaining in custody, and charging or prosecuting the defendant.

(2) A law enforcement agency may use standard procedures for investigating the use of force as described in subsection (1), but the agency may not arrest the person for using force unless it determines that there is probable cause that the force that was used was unlawful.

(3) The court shall award reasonable attorney’s fees, court costs, compensation for loss of income, and all expenses incurred by the defendant in defense of any civil action brought by a plaintiff if the court finds that the defendant is immune from prosecution as provided in subsection (1).

Id. The law, formally called, “An act relating to the protection of persons and property,” 2005 Fla. Laws 199, also enacted Stand Your Ground, 2005 Fla. Laws 202, and two presumptions making it easier to defend deadly defensive force in a person’s home and cars, see id. (creating Fla. Stat. § 776.013(1), (4)).

After some Florida judges placed the burden on the defendant to prove self-defense at a pretrial hearing, legislators stepped in to strengthen the immunity provision by clarifying that the burden of proof is on the prosecutor to disprove self-defense before trial by clear and convincing evidence.¹⁵⁹ That standard is much higher than the probable cause standard that prosecutors must satisfy to indict, which, as discussed above, is the primary focus of traditional and modern pretrial screening.¹⁶⁰ And there have been efforts to increase the burden even more, such as by requiring the prosecutor to disprove self-defense beyond a reasonable doubt—the same burden borne by the prosecutor at trial.¹⁶¹

Unlike Colorado’s law, which failed to attract buy-in elsewhere, Florida’s law was aggressively promoted by the NRA and the conservative American Legislative Exchange Council (“ALEC”),¹⁶² which described the need to “[p]rotect[] citizens from prosecution or liability if they use a firearm in self defense [sic] inside or outside their homes.”¹⁶³ Similar laws were introduced in states across the country,¹⁶⁴ and the NRA-promoted sentiment that civilians asserting self-defense should have a path to immunity was frequently invoked. When legislators debated Iowa’s self-defense law, one objected that a person must “spend eternity in prison trying to defend themselves” after being put “in that untenable situation where they have to make that snap decision and defend themselves or another from an aggressor.”¹⁶⁵ In Ohio, a legislative witness inveighed that “[t]he mere fact of acting justly in self-defense should not result in dragging folks who used defensive force in accordance with Ohio law through the mud, costing them valuable time and resources.”¹⁶⁶ In South Carolina, a self-defense bill’s sponsor argued that “the State should have to prove you did something wrong before they can send you to jail” to await trial in homicide cases.¹⁶⁷ And in Utah, an advocate complained that people should not have to “go through the crucible of a self-defense trial.”¹⁶⁸ Ultimately, after the passage of Florida’s law, more than twenty other states passed some sort of self-defense reform, such as Stand Your Ground,¹⁶⁹ with at least thirteen enacting self-defense immunity.¹⁷⁰

But the fact that people who lawfully defend themselves are sometimes prosecuted and forced to argue self-defense is unexceptional. It is a truism that self-defense sometimes exculpates—that is precisely why it is an available defense to criminal charges. Singling out self-defense for special treatment as an immunity should have a compelling rationale similar to the ones that justify other prosecutorial immunities. The next Section searches for such a rationale in the legislative debates and commentary.

C. Searching for a Rationale

A common assertion among advocates for self-defense immunity is that awaiting trial is “not giving the right to self-defense the consideration it deserves.”¹⁷¹ But why not? After all, awaiting trial is the traditional process and the one afforded other defenses. In his systematic analysis, Paul Robinson identifies dozens of other affirmative defenses that bar conviction.¹⁷² What is the basis for treating self-defense differently than these other defenses? Though legislative debates offer no consistent rationale, four can be teased out: restoring procedural protections for self-defense lost to history, stopping politically motivated prosecutions of self-defenders, vindicating the notion that self-defense is a “natural right,” and reducing defense costs for gun owners. None of these is as strong as the rationale for traditional immunities—an inherent need for pretrial adjudication.¹⁷³ Moreover, each is unpersuasive on its own terms.

Some advocates argue that prosecutorial immunity restores self-defense to an exalted place from a bygone era. In Florida, for example, a witness testified that making the prosecutor disprove self-defense before trial “recover[s] a right that we as citizens lost to defend ourselves from criminals.”¹⁷⁴ In Utah, a witness testified that “Utah used to have a robust preliminary hearing procedure” as it relates to self-defense, and that immunity “restores some much-needed balance.”¹⁷⁵

A related move has been to couple self-defense immunity with Stand Your Ground and then defend both on the basis of Stand Your Ground history. For example, the NRA has said that Stand Your Ground laws, such as Florida’s (which includes an immunity provision), “focus on the narrow issue of whether and to what extent a person who would otherwise have a right to self-defense forfeits that right by not first attempting to flee the confrontation.”¹⁷⁶ With omnibus bills like Florida’s so purportedly reduced, the NRA then asserted that removing the duty to retreat has “a pedigree in American law dating back over 150 years.”¹⁷⁷ Other advocates have similarly ignored everything in recent self-defense legislation other than Stand Your Ground and then defended the entirety on the basis of Stand Your Ground history.¹⁷⁸

Nostalgia is a staple of gun rights advocacy,¹⁷⁹ so it is unsurprising to see appeals to history when it comes to self-defense immunity. Yet, as shown in Section I.A, there is no basis in Anglo-American legal tradition for immunizing private defensive violence. Treating self-defense as exceptional through immunity is a thoroughly modern innovation.

An alternative rationale is that people exercising lawful self-defense are targeted for “political” prosecutions.¹⁸⁰ Prosecutors have vigorously rejected that narrative, and advocates for immunizing self-defense have failed to offer convincing evidence of political prosecutions, let alone the sort of systemic abuses that would justify a radical change to self-defense law. Advocates for both of the first immunity statutes—in Colorado (1986) and Florida (2005)—could not point to a single example of an improper prosecution.¹⁸¹ Rather, the chief NRA lobbyist for the Florida law ultimately contended that whether bad prosecutions have been brought is “not relevant.”¹⁸²

In subsequent efforts to immunize self-defense, advocates have invoked the prosecutions of George Zimmerman for the shooting death of Trayvon Martin and Rittenhouse for the Kenosha incident as exemplars of political prosecutions justifying self-defense immunity.¹⁸³ Looking to Zimmerman’s prosecution is somewhat ironic given that it took place in Florida after Florida adopted its 2005 immunity provision and Zimmerman opted not to have a pretrial immunity hearing.¹⁸⁴ Furthermore, in both cases the juries reached verdicts only after extensive deliberation. The lead homicide investigator in the Zimmerman case recommended charges but was initially overruled.¹⁸⁵ Many perceived the declination of charges as reflecting racial bias, as Martin was an unarmed Black teenager.¹⁸⁶ A special prosecutor ultimately brought charges and a trial was held.¹⁸⁷ The law considered by Zimmerman’s jury did not include how initial aggressors have a limited right to self-defense, since the judge declined to instruct the jury on the initial aggressor doctrine;¹⁸⁸ perhaps that would have made a difference in the verdict. Others have argued that prosecutors in both cases made strategic errors that may have affected the outcomes.¹⁸⁹ In the Zimmerman trial, half of the jurors reportedly wanted to convict but changed their minds.¹⁹⁰Deliberations in both cases extended over multiple days before the jurors returned not guilty verdicts.¹⁹¹

Of course, in an ideal world, prosecutors would have perfect clarity into guilt and innocence, and prosecutions that result in acquittals after trial would never be brought. That, of course, is not realistic and is the reason why affirmative defenses and trials exist.¹⁹² Moreover, in light of the radical nature of the change wrought by singling out self-defense for immunity, if political prosecutions are the justification, then advocates should put forth more and better examples.

Another rationale that advocates raise is that self-defense is philosophically or morally distinct as a natural or human right.¹⁹³ The Republican Party platform refers to the right of self-defense as “God-given.”¹⁹⁴ And the argument that self-defense is a justification and not an excuse is often explained by referencing moral philosophy.¹⁹⁵ But these understandings of self-defense as a natural, divine, or human right have long existed in harmony with adjudication at trial. Blackstone, for example, referred to self-defense as a natural right,¹⁹⁶ but he believed, as described above, that self-defense is squarely a jury question.¹⁹⁷ Saying that self-defense is a natural right does not rationalize treating it as an immunity any more than it rationalizes erasing the common law elements of necessity and proportionality that have long guided self-defense decision-making.¹⁹⁸

That leaves the fourth explanation, which perhaps arises most often: that gun owners should not have to pay typical criminal defense costs if they have a claim of self-defense. The NRA’s former executive director noted that “the legal fees . . . can easily top $50,000.”¹⁹⁹ A representative of a gun rights advocacy group in Wyoming expressed a similar view: “We don’t want to have a gun owner bankrupted by the criminal process just because he had to use a firearm in self-defense.”²⁰⁰ And in Utah, an advocate said, “I have people calling me all the time [and saying] I’m afraid it will ruin me if I have to defend myself.”²⁰¹ The legislative sponsor of the Utah bill recounted how a person leaving a gun carry class remarked, “I would rather die than financially ruin my family” by using a gun in self-defense.²⁰²

The cost of criminal defense is a concern for all defendants, not just those asserting that violent conduct was justified as self-defense, and cost typically is not a sufficient rationale for prosecutorial—as opposed to civil—immunity.²⁰³ If self-defense, alone among affirmative criminal law defenses, is to be immunized, it warrants a much stronger rationale than cost saving for gun owners. This is especially true in light of the costs incurred as a result of self-defense immunity that are discussed in the next Part.

III. THE COSTS OF IMMUNIZING PRIVATE VIOLENCE

The previous Section showed how the usual arguments put forth to support self-defense immunity are thin. It also is important to consider whether immunizing private violence has costs that further undercut exceptional treatment of defensive force. This Part contends that it does: immunizing self-defense can lead to more unlawful violence with less legal oversight; diminish the jury, thereby inviting less accurate and less legitimate outcomes; and introduce inefficiency into the criminal justice process.

A. More Unlawful Violence (and Increased Impunity)

The message that self-defense immunity sends is troubling: that people can engage in defensive violence that they believe is lawful with less legal oversight. Both logic and data suggest that this message could bring about more assaults and homicides because of the impunity it signals—and in fact provides. Frederick Schauer has observed that “[q]uite often, officials who are immune for one reason or another from formal legal sanctions violate the law with some frequency.”²⁰⁴ One can expect the same result from self-defense immunity, except for a much larger swath of the population; relatively few people receive official immunity, but everyone is entitled to assert self-defense when defending against criminal charges.²⁰⁵

Rafi Reznik has recently argued that the modern understanding of self-defense as a justification, not an excuse, can signal societal acceptance of the alleged offense conduct in a way that promotes more violence;²⁰⁶ immunity sends an even more powerful signal. As Reznik describes, in the dominant view, a justification indicates that “the wrongfulness of the act is negated.”²⁰⁷ Excuses, on the other hand, do not negate the wrongfulness of the conduct but “negate the blameworthiness of the actor.”²⁰⁸ The upshot is that “[j]ustifying self-defense,” as opposed to excusing it, “can . . . amount to an encouragement and it can even amount to an imperative.”²⁰⁹ Reznik argues that self-defense should be considered an excuse, which it was under English common law.²¹⁰ On the ground, however, the trend is going in the opposite direction: jurisdictions are granting immunity to self-defenders, which goes even further down the path toward encouraging the use of violence than considering self-defense a justification.²¹¹

This trend is especially problematic because people are often wrong about the lawfulness of defensive force. One study found, for example, that a majority of self-reported defensive gun uses are likely illegal.²¹² People “view [a] hostile encounter from their own perspective; in any mutual combat both participants may believe that the other side is the aggressor and that they themselves are acting in self-defense.”²¹³ A particular incident from the summer of the Rittenhouse shooting is exemplary.

Two months before the Rittenhouse shooting, Mark and Patricia McCloskey stood outside their St. Louis, Missouri, mansion as racial justice protesters marched nearby.²¹⁴ Both were captured on video screaming angrily and wielding firearms: Mr. McCloskey, an AR-15–style rifle, and Ms. McCloskey, a handgun that she pointed at one protester after another.²¹⁵ In Missouri, it is a crime to “exhibit[], in the presence of one or more persons, any weapon readily capable of lethal use in an angry or threatening manner.”²¹⁶ A local prosecutor charged the couple with violating that statute.²¹⁷ In their defense, the couple asserted that their conduct was justified to protect themselves and their property.²¹⁸

Speaking at the 2020 Republican National Convention (the McCloskeys, like Rittenhouse, became celebrities on the political right for their gun use),²¹⁹ Mr. McCloskey, a lawyer, expressed outrage that the prosecutor “actually charged [them] with felonies for daring to protect [their] home.”²²⁰ Then, in a remarkable move, Missouri’s attorney general urged dismissal of the local charges on the basis of the sentiment underlying immunity: “Missourians should not fear exposure to criminal prosecution when they use firearms to defend themselves and their homes from threatening intruders.”²²¹ In the end, however, the couple effectively conceded that they were not lawfully defending themselves when they pled guilty to the crimes of assault and harassment, thereby waiving any claim for self-defense.²²² In other words, despite their confident assertions that they were legally justified in their actions, they ultimately admitted that they had no legal justification for their conduct.²²³

Unlawful defensive force imposes an especially troubling risk to Black men and women, like many of those marching in front of the McCloskey house, who are mistaken as threats all too frequently. Data has consistently shown that Black people are more likely to be misperceived as a threat than white people.²²⁴ According to L. Song Richardson and Phillip Atiba Goff, this is in part because Black people “serve as our mental prototype (i.e., stereotype) for the violent street criminal.”²²⁵ A prosecution and trial can separate out biased and unreasonable threat perceptions from unbiased and reasonable ones better than any individual can in the moment.²²⁶ And getting it right is important for ensuring a fair and just implementation of criminal law.

Well-intentioned people can have flawed perceptions of lawfulness, but encouraging restraint for defensive violence through the threat of prosecution and punishment is even more important for those who are ill-intentioned. For some people, “genuine and sanction-independent obedience [to the law] is rare.”²²⁷ In that circumstance, “coercion through the threat of sanctions emerges as the principal mechanism for securing the obedience that turns out to be so often necessary.”²²⁸ Immunity lessens the law’s constraining force and risks that someone prone to violence will construe immunity as a license to commit violence.²²⁹

In this regard, it is notable that a study of the effects of Colorado’s 1986 immunity law found that those invoking immunity “used force (sometimes deadly force) as much out of anger as self-defense.”²³⁰ Moreover, the legal change primarily benefited defendants other than the intended beneficiaries—homeowners confronting stranger intruders.²³¹ In the years immediately following the enactment, the only “strangers” who intruded into homes and faced defensive force triggering immunity were police officers.²³²

Unfortunately, more recent empirical studies on the impact of changes to self-defense law do not distinguish between the effect of various simultaneous changes, such as Stand Your Ground, presumptions, and immunity. Several such studies have shown that self-defense reforms that include an immunity provision correlate with more violent crime.²³³ One study found that in the decade following Florida’s 2005 legislation, “monthly rates of homicide increased by 24.4% and monthly rates of homicide by firearm by 31.6%.”²³⁴ Another found that the law was associated with a 44.6% increase in adolescent firearm homicides.²³⁵ In February 2020, the U.S. Commission on Civil Rights released a report finding no evidence of crime deterrence and an increase in homicide rates in states that adopted such laws.²³⁶ A commissioner recommended rejecting self-defense immunity because it “remove[s] incentives to mitigate or reduce the use of deadly force by protecting the claimant regardless of the collateral consequences.”²³⁷ Yet, as noted, the power of these studies as regards the impact of self-defense immunity is limited and, hopefully, future empirical studies will seek to isolate the effect of self-defense immunity.

A corollary to the signals sent by self-defense immunity is that sometimes immunity can in fact hinder or prevent a conviction of someone who engages in unlawful violence. The analysis of cases soon after Colorado passed its self-defense immunity law in 1986 found that the statute likely led to an acquittal in one case that would otherwise have been a probable conviction, as well as decisions not to prosecute in others.²³⁸ The district attorney for a single county in Kansas has reported “declin[ing] to file charges against thirty-three people based on self-defense immunity,” thirty of which were deemed homicides by the coroner.²³⁹ Three additional cases were charged by the district attorney but dismissed on self-defense immunity grounds by a judge.²⁴⁰

Those arguing in support of self-defense immunity do not contest, and implicitly concede, much of this analysis. They acknowledge that the risk of having to defend against a prosecution causes gun owners to hesitate before deploying lethal force, and they seek to reduce such hesitation.²⁴¹ However, a cost of immunizing self-defense is to transform the signals sent by conventional self-defense law in a way that likely leads to more unlawful, and at times discriminatory, violence. Furthermore, immunizing self-defense erects an obstacle to achieving a basic goal of the criminal justice system: punishing those who commit crimes of violence.

B. Fewer Juries in Matters of Community Importance

Another consequence of granting a defendant immunity is to disempower a jury from deciding facts surrounding a properly charged crime. The institution of the jury has long played a central role in self-defense cases. The jury is well-equipped to resolve disputes about the lawfulness of violence. Moreover, and importantly in the context of self-defense, the community’s involvement through the jury legitimates the law and promotes acceptance of outcomes as well as community healing.

Today, the jury is most often discussed solely in the context of defendants’ rights,²⁴² but the jury’s importance to society is actually far deeper. At the nation’s founding, Anti-Federalists were adamant about protecting the institution of the jury because, even more than protecting the defendant, the jury integrated “the people in the administration of government.”²⁴³ As Laura I. Appleman has put it, “the right of the jury trial” is about “the participation of the citizenry in [the] rule of law.”²⁴⁴ This feature of the jury—as a key means of community involvement in the law’s implementation—is reflected in the fact that a defendant has no federal constitutional right to waive a jury trial, even if a defendant can demand one.²⁴⁵ Prosecutors and courts generally can demand jury trials even over the defendant’s objection.²⁴⁶ Today, as in the past, there is a “strong preference for jury trials on all elements of a criminal case.”²⁴⁷

Accuracy is one important interest served by this longstanding commitment to juries, because “[j]uries . . . are considered the best deciders of fact.”²⁴⁸ This is in no small part because juries “are more representative of their communities than judges . . . . They better represent various races, socio-economic classes, various levels of formal education, differing religions, and a broader spectrum of political engagement than do judges.”²⁴⁹ This is especially true when the task is assessing “matters reflecting their communities’ values,”²⁵⁰ like self-defense.

Self-defense is inherently fact-based, calling for answering difficult questions about the reasonableness of a defendant’s perception of—and violent response to—a threat. Evaluating the lawfulness of self-defense calls for an assessment of whether defensive force was reasonably necessary and proportionate to a reasonably perceived threat.²⁵¹ Criminal law scholars devise complex classifications in an attempt to capture the permutations of defensive confrontations and how they intersect with the law of self-defense,²⁵² but it is impossible to resolve self-defense claims through any sort of rote analysis. It is necessary to apply community values and experiences to assess reasonableness, and judges, unlike juries, are often removed from both.²⁵³ Simply because a jury is comprised of a cross-section of the community, the jury will incorporate perspectives and experiences that lead to a fair resolution of disputed facts more so than a single judge who is likely insulated from the circumstances that gave rise to the violence.

Moreover, importantly, community resolution of the difficult factual questions that go into self-defense can legitimate the law and promote acceptance of outcomes.²⁵⁴ Precisely because “juries have the power to incorporate societal norms and values into their decisions . . . citizens can view these determinations as legitimate and as not influenced by the political leanings of government-employed judges.”²⁵⁵ That sense of legitimacy, in turn, can help a community accept a case’s outcome and move past the trauma of community violence.

For example, after the killing of Trayvon Martin, the quick decision not to prosecute George Zimmerman led to mass protests across the country.²⁵⁶ Many thought that the declination of charges suggested that “the criminal justice system was indifferent to Trayvon Martin’s death and was disinclined to try to provide justice.”²⁵⁷ The fact that Martin was a Black teenager triggered speculation that race was part of the reason for not immediately prosecuting Zimmerman.²⁵⁸ When a special prosecutor subsequently charged Zimmerman, the move brought great relief. Martin’s mother commented that “[w]e simply wanted arrest, nothing more, nothing less, and we got it.”²⁵⁹ Although many people who wanted a prosecution may have been disappointed by the jury verdict of not guilty, that the process was followed, and that the decision was rendered by a jury certainly lowered the temperature of the earlier protests.

Conversely, a prosecution’s dismissal because of immunity sends a very different signal to the community. Victims and family members can never know how a jury of their peers would decide on the legality of defensive force. Indeed, a homicide case in Utah elicited the opposite reaction after the defendant was discharged because of self-defense immunity.²⁶⁰ A family member of the victim of the alleged homicide exclaimed in court: “We all feel the justice system has no doubt failed us.”²⁶¹ Another said: “This has forever changed my outlook on the system and the faith that I once had that justice would prevail.”²⁶² Similarly, in Kansas, after a prosecutor declined to bring homicide charges against juvenile detention officers citing a self-defense immunity law, the victim’s family viewed the decision as “yet another instance of an unarmed Black teenager killed by law enforcement with impunity” and without “even an ounce of accountability.”²⁶³ Likewise, a community partnership expressed “outrage[]” at the declination of charges, viewing it as a “blatant disregard for the life” of the victim.²⁶⁴

The denouncements above demonstrate that self-defense immunity can not only prevent a community from healing, but can also undermine the rule of law and faith in the judiciary. In this regard, it is notable that the criticism in such cases is not at the legislature for passing a self-defense immunity bill, or at the governor for signing it, but rather at the “justice system” that “no doubt failed.”²⁶⁵ Moreover, under the law of self-defense, the harm caused by defensive violence is supposed to “remain[] a legally recognized harm which is to be avoided whenever possible,”²⁶⁶ and the conduct underlying self-defense is supposed to “remain[] generally condemned and prohibited.”²⁶⁷ Immunity dilutes the force of such legal values and erodes trust that the judicial system will enforce them.

C. Inefficient Mini-Trials

One counterargument to concerns about self-defense immunity is that it will only weed out rare, egregious prosecutions. In some places where self-defense immunity is already enacted, the defendant has the burden of proving self-defense at an immunity hearing,²⁶⁸ or, in the alternative, the prosecutor must only show probable cause that self-defense did not justify the defendant’s violence.²⁶⁹ In those places, most self-defense cases might still proceed to trial. This, however, raises a question about judicial economy.

To be sure, the likely trajectory for self-defense immunity is for legislators to strengthen it, similar to how Florida recently placed the burden on prosecutors to disprove self-defense by clear and convincing evidence at a pretrial hearing.²⁷⁰ Since Florida has led the way for NRA-backed initiatives to be subsequently passed elsewhere,²⁷¹ it is no surprise that when Utah passed its self-defense immunity law in spring 2021, a legislative sponsor said the law “basically copie[d] and paste[d]” the clear and convincing evidence standard “from Florida[’s] statute.”²⁷² Furthermore, even in jurisdictions with lesser prosecutorial immunity standards currently, immunity still sends troubling signals that could increase violence.²⁷³

Setting aside these concerns and focusing narrowly on the argument that immunity will have little impact on prosecutions outside of rare cases, a question arises: Why undertake an expensive immunity hearing that will mirror the eventual trial at all? Two goals of the rules governing criminal procedure are to “secure simplicity of procedure” and “to eliminate unjustifiable expense.”²⁷⁴ Self-defense immunity runs counter to those goals.

In this regard, it is helpful to contrast self-defense with other pretrial issues discussed above,²⁷⁵ which generally implicate evidence that is both clear-cut and distinct from proof of guilt or innocence. Whether too much time has passed between criminal conduct and a prosecution so as to violate a statute of limitations, for example, may call only for simple arithmetic unrelated to the alleged offense conduct.²⁷⁶ The same could be said for speedy trial issues.²⁷⁷ Determining whether a pending prosecution is substantially the same as an earlier one, thereby violating double jeopardy protections, calls for a comparison of the two prosecutions.²⁷⁸ And determining whether diplomatic immunity attaches often only requires inquiring into the defendant’s status as a diplomat and whether the sending state has waived the immunity.²⁷⁹

Yet proving or disproving whether self-defense exculpates requires consideration of the same witnesses and evidence that will be introduced at trial to prove the charged crime. Indeed, this is implicit in affirmative defenses (like self-defense), which contend that something happening at the time of the alleged offense justified or excused the underlying conduct. Resolving the lawfulness of self-defense ahead of trial would call for delving into the circumstances surrounding the charged offense and receiving testimony from the same witnesses of the alleged crime who will testify at trial. Self-defense immunity hearings, when they do not result in a dismissal, involve “mini-trials of the evidence in advance of the actual trial” that criminal procedure typically seeks to avoid.²⁸⁰

To be sure, adding costs and inefficiencies is not always inappropriate. Many scholars agree that grand juries are ineffective at eliminating bad prosecutions²⁸¹ and that the plea bargain system that is used to resolve the vast majority of criminal prosecutions creates injustices.²⁸² Some scholars and advocates have thus suggested reforms that would be costly, like enhancing internal prosecutorial screening²⁸³ or devising something akin to summary judgment for criminal procedure.²⁸⁴ But self-defense immunity is extrinsic to that broader conversation, which is about how to improve the pretrial process for all issues bearing on guilt and innocence, and for all defendants. Self-defense immunity grants a benefit for one defense championed by powerful lobbyists. That may explain why self-defense immunity is passing in legislatures, but it hardly rationalizes the costs.

CONCLUSION

A central goal of this Article is to show that the exceptionalism reflected in self-defense immunity laws is not rooted in history, tradition, or longstanding priorities of criminal law and procedure. Self-defense has always been an affirmative defense, embedded in a system of defenses and vindicated through the same criminal justice process as other defenses. Those pursuing self-defense immunity have thus far failed to put forward a compelling rationale for a radical departure from legal tradition. Self-defense should remain unexceptional within the system of criminal law defenses to avoid the unwarranted harms that can come from immunizing private violence.

96 S. Cal. L. Rev. 509

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Eric Ruben*

* Associate Professor, SMU Dedman School of Law; Fellow, Brennan Center for Justice at N.Y.U. School of Law. Many thanks to Hillel Bavli, Joseph Blocher, Jake Charles, Guillermo Jose Garcia Sanchez, Chris Jenks, Cynthia Lee, Pamela Metzger, Darrell A. H. Miller, Adam Sopko, Jenia Iontcheva Turner, and Cynthia Ward, as well as participants in the U.C. Davis Law Review’s 2021 symposium, for helpful comments and suggestions. Tiereney Bowman, Robert Larkin, Maggie Gianvecchio, Darby O’Grady, Meredith Palmer, and Nick Salinaro provided excellent research assistance.

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Suing SPACs

July 2023October 2023Emily Strauss*

In 2020, the financial world became transfixed by a massive increase in the number of firms going public through special purpose acquisition company (“SPAC”) transactions. A SPAC is a publicly traded company formed solely for the purpose of raising money from investors and choosing a merger partner, thereby bringing the target company public. SPAC shareholders vote on the proposed transaction, but also have the option to redeem their shares for the price paid plus interest prior to the merger. SPACs have always been controversial; they make risky ventures available to unsophisticated investors, may involve acute conflicts of interest, and do not make the rigorous disclosures required in standard IPOs.

Is litigation a solution to these problems? The SPAC boom, as many commentators predicted, precipitated a deluge of lawsuits. Although several studies examine the SPAC transactions themselves, this project is the first comprehensive study of SPAC-related litigation. Using a dataset of all SPAC transactions completed since 2014 and all SPAC-related lawsuits filed since 2017, I assess the prevalence and characteristics of these lawsuits. I find that the probability that a SPAC transaction will generate a lawsuit appears to be unrelated to the returns on the deal, the size of the merger, the industry of the target, and various proxies for SPAC quality. However, I find a negative association between the likelihood of litigation and redemption rate. This is surprising because it means that the SPAC transactions more likely to generate lawsuits are those in which the SPAC shareholders choose to keep, rather than redeem, their shares, presumably signaling greater confidence in the quality of the deal. I argue that many of these lawsuits are opportunistic and may be of questionable quality. I further argue that these lawsuits are an inadequate substitute for the liability that firms face in connection with standard IPOs.

INTRODUCTION

Beginning in 2020, the financial world has been transfixed by a striking rise in the number of firms going public through special purpose acquisition company (“SPAC”) transactions. Although SPACs have been in and out of vogue for several decades, the most recent explosion is unprecedented.¹ In 2020, 53% of all initial public offerings (“IPOs”) were SPACs, and in the first quarter of 2021, that percentage rose to 62%,² when SPACs issued more than $30 billion per month in equity.³

A SPAC is essentially a publicly traded shell company whose sole purpose is to merge with a private company, thereby bringing it public. The SPAC raises money from investors in an IPO and has a limited period (often about two years) to search for a target. Once the SPAC identifies a merger partner, the target merges into the SPAC in a “de-SPAC” transaction, thus going public while itself avoiding the time-consuming and expensive IPO process. Upon the announcement of a merger, SPAC shareholders are given the opportunity to redeem their shares for the issuing price plus any interest accrued—usually about ten dollars. Low redemption rates are thought to signal confidence in the quality of the merger—shareholders think the transaction is a good one, and thus elect to retain their shares. High redemption rates, by contrast, may signal that shareholders and the market in general are skeptical of the deal.

SPAC transactions have been controversial for most of their existence. They allow young, risky firms to access the public markets—and potentially, unsophisticated investors.⁴ De-SPAC transactions are conducted on tight timelines by management who will lose everything if the merger does not close. They may settle for subpar targets or terms, skimp on diligence, or even engage in outright fraud rather than risk losing a deal and returning all the IPO proceeds to the shareholders. Moreover, shareholders that see the transaction through face a risk of significant dilution that they may not understand.⁵

Is litigation a solution to these problems? It would not be crazy to think that surely the heightened risks that investors face in these transactions should be fully disclosed and that SPACs should face dire consequences if these disclosures are incomplete and inaccurate. But by design, the heavy hammer of strict liability under section 11 of the Securities Act and Exchange Act (“section 11”), which penalizes misstatements in standard IPOs, is generally inapplicable to SPACs. This has not deterred plaintiffs, however; top legal blogs⁶ and press articles⁷ began to bubble with anecdotal reports of a deluge of SPAC-related lawsuits in the spring of 2021. But while numerous commentators have examined the characteristics of the SPACs constituting the boom, so far there has been no comprehensive study of the litigation they have generated. What kinds of claims comprise this flood, and what is their role?

In a first attempt to answer this question, I analyze a sample of 230 SPAC transactions and 150 lawsuits (generated by 62 of those transactions). My sample encompasses the SPAC boom through the second quarter of 2021, which, by all accounts, seems to be the height of the frenzy. I find that the majority of claims arising from de-SPAC transactions are, perhaps unsurprisingly, so-called “merger objection” claims. These are brought either under state law, claiming violation of managers’ fiduciary duties, or under section 14 of the Securities and Exchange Act, alleging fraud in the proxy materials by which management solicited shareholders to vote for the merger. Collectively, these merger objection claims comprise over 60% of the claims in my sample, and most are filed before the merger closes.⁸ The second main class of claims comprising the SPAC litigation deluge are broader claims under Securities and Exchange Commission (“SEC”) Rule 10b-5,⁹ the all-purpose workhorse of securities litigation, which punishes material misstatements or omissions in connection with the purchase or sale of a security. These are typically brought after the closing of the de-SPAC transaction and comprise roughly 30% of the claims in my sample.¹⁰

Do these lawsuits target, improve, or deter bad SPACs? Although these lawsuits are in their early days, based on my sample, they appear in fact to target quite good SPACs. In examining these transactions and claims, my main finding is an intuitively odd one: that the likelihood that a de-SPAC transaction will generate a lawsuit—any kind of lawsuit—is negatively related to redemption rate. Transactions with higher redemption rates are commonly thought to be qualitatively worse mergers and might seem likely to generate more lawsuits. My sample, however, shows the reverse: that the probability that a transaction will generate litigation rises as redemption rates decline. This finding is robust to the inclusion of a panoply of controls. An equally puzzling finding is that based on my sample, the probability of being sued appears to be unrelated to deal size, target industry, returns of the merged company, managerial savvy, or various other proxies for deal quality.

What explains this surprising relationship between lawsuits and redemption rates? There are two potential explanations. One cheery possibility is that SPAC-related lawsuits may target fraudulent transactions in which misrepresentation by the management has had the effect of inducing investors to keep, rather than redeem their shares. If this is true, SPAC-related lawsuits may be fulfilling precisely the function for which they are designed: if brought after the merger, they are vindicating the interests of shareholders who did not redeem their shares because they were lied to. And if brought before the merger, these lawsuits may halt bad deals or prompt managers to improve transactions, thus inducing shareholders to keep their shares. If these stories are true, SPAC-related lawsuits are spectacularly successful and should be encouraged.

But there are also less rosy explanations for the negative relationship between litigation probability and redemption rate. Lower redemption rates—even if they legitimately signal a stronger transaction—could mean larger classes, more purported damages, and higher lawyers’ fees, and may thus be tempting targets for lawsuits after the merger. And in the notoriously dysfunctional ecosystem of merger litigation, challenges to SPACs brought before the deal closes may be filed indiscriminately. Even more damning, they may target fraudulent transactions but nonetheless fail to induce shareholders to redeem. I argue that this is likely because these lawsuits are of low quality, as many merger challenges infamously are.¹¹ I find that the eventual returns on deals that generated merger objection claims are no better than those that did not, and all of the mergers in my sample closed. There thus appears to be no evidence that these lawsuits are improving de-SPAC transactions or weeding out the bad ones. Roughly half of the merger objection cases in my sample were voluntarily dismissed without litigation within the sample period. The few settlements that are publicly disclosed are for paltry fees. And they are generally filed prolifically and sloppily by a handful of entrepreneurial plaintiffs’ firms composed of fewer than ten lawyers each.

The merger litigation in my sample is the product of a deliberate swap whereby SPACs substitute liability under the merger regime for the heavy cudgel of section 11 liability. In general, we are most concerned about misrepresentations precisely when firms are new to the market and have no history for shareholders to assess; this explains the rigidity of section 11 of the Securities Act, which provides virtually strict liability for misstatements and omissions in a registration statement, which firms file when they conduct an IPO. Because they are shells when they go public, SPACs have nothing to disclose in a registration statement and thus avoid exposure under section 11. To assess the effects of this “SPAC litigation swap,” I compare pre-closing merger objection claims in my SPAC sample to section 11 claims in a sample of IPOs over the same period. I find that in substituting liability under the Securities Act for liability under the merger regime, SPACs have, in terms of sheer volume, fallen from the frying pan into the fire. The number of merger objection claims in 2020 and 2021 is equal to nearly 70% of the number of de-SPAC transactions (as opposed to less than 9% of the IPOs that drew section 11 claims across my sample). But while the merger challenges in my sample have so far disclosed only a few settlements with a mean of roughly $200,000, the mean section 11 settlement in my sample—including cases that were dismissed or are ongoing—is roughly $4.5 million. All of this suggests that merger litigation, especially before the deal closes, may not perform the same policing function as section 11 liability. These cases are pervasive and cheap to settle, meaning that shareholders may not take them seriously as a signal of misconduct, and thus do not redeem their shares. Moreover, the penalties these lawsuits impose are likely too low to induce managers to be truthful.

If SPACs have problems in need of correction, it is unclear whether private litigation is up to the job. Pre-closing merger objection cases, which constitute much of the SPAC litigation deluge, seem to reflect an effort to collect many small fees for small plaintiffs’ lawyers and are unlikely to result in better deals. And although their ultimate impact is unclear, even some lawsuits brought after the merger, largely under Rule 10b-5, may be calculated to procure a high fee for plaintiffs’ counsel, rather than targeting true misconduct. If the SPAC structure constitutes a deliberate bargain by which public investors receive the opportunity to invest in potentially high-risk-high-reward ventures normally unavailable to them in return for less information, perhaps this is no cause for concern. On this view, SPAC litigation may be working as designed; expensive section 11 lawsuits are virtually unknown and are replaced with merger objection claims. Many of these claims, though brought in high volume, are low impact, and the nominal fees to plaintiffs’ counsel are a “tax” that all deal participants are willing to pay. However, if we view SPACs as vehicles for debuting firms to the public market that should disclose information of the same quality to their investors as is required in other IPOs, SPAC-related litigation currently appears unlikely to adequately fulfill this role. While government intervention could be an avenue to remedying any deficiencies in SPACs, reform of shareholder litigation—most urgently, pre-closing merger challenges—is necessary to help police future market innovations.

This Article proceeds as follows. Part I provides some brief background on SPACs and the litigation they have generated. Part II describes my data. Part III discusses descriptive statistics and empirical analysis, and Part IV investigates potential explanations for the odd inverse relationship between litigation probability with redemption rate. Part V compares merger liability in SPACs to section 11 liability in IPOs. Part VI assesses policy implications.

I. BACKGROUND

A special purpose acquisition company, or SPAC, is a public company formed by a sponsor that, following its IPO, has no operations except to search for a non-public firm to merge with and thereby bring public.¹² SPACs originated in the 1980s as “blank check” companies, which often made speculative investments and were considered penny stocks.¹³ The SEC adopted tighter controls on blank check companies in 1990 with the Penny Stock Reform Act and Rule 419.¹⁴ While SPACs have evolved in various ways (in some cases, specifically to avoid the strictures of Rule 419), many of their defining characteristics remain the same. In an IPO, SPACs typically sell units priced at $10. Most units consist of a share and a warrant entitling the holder to buy some percentage of a share for $11.50 at a date five years after the completion of the merger.¹⁵ SPACs hold the proceeds from the IPO in an escrow account, in which they accumulate interest.¹⁶ The sponsors of the SPAC have no access to the escrow account.¹⁷ Sponsors usually retain 20% of the shares (called the “sponsor promote”) as compensation, which are contingent on completing a merger.¹⁸

SPACs cannot form already having identified a merger target, and usually set an 18-to-24-month deadline to find and merge with a target company.¹⁹ Once a target is identified, shareholders of the SPAC are informed and must vote to approve the merger. Independently however, shareholders must also decide whether to keep or redeem their shares; those who redeem are entitled to the price paid for the units, plus a pro rata share of any interest accrued in the trust.²⁰ Notably, shareholders who choose to redeem their shares can nonetheless both vote for the transaction and keep their warrants (which are unbundled from the shares to trade separately following the IPO).²¹ If, however, the SPAC managers fail to identify a merger target in the specified time period, the trust must be liquidated and paid out to shareholders, and sponsors receive nothing (although extensions of time are sometimes negotiated with shareholders).²² Since it is not certain how many shareholders will choose to redeem their shares prior to the merger, de-SPAC transactions are negotiated to include a minimum amount of cash, and to meet this need, SPAC sponsors frequently arrange for private investment in public equity (“PIPE”) funding.²³

The popularity of the SPAC skyrocketed in 2020, raising as much cash in that year as in the entire preceding decade,²⁴ and the first quarter of 2021 alone saw more SPACs created and more money invested than in the entirety of 2020.²⁵ This meteoric rise has slowed since the second quarter of 2021,²⁶ although many previously formed SPACs are still shopping for merger partners, and new SPACs are continuing to form. The slowdown is likely the result not only of increased regulatory attention,²⁷ but of heightened overall scrutiny of SPAC performance.

A. Accounts of the 2020–2021 SPAC Boom

Several expert accounts have painted damning portraits of the SPACs that are the product of the most recent bubble. Using a sample of all forty-seven SPACs that merged between January 2019 and June 2020, Michael Klausner, Michael Ohlrogge, and Emily Ruan found that the structure of SPACs creates substantial costs, misaligned incentives, and on the whole, losses for investors who own shares at the time of SPAC mergers (that is to say, those who do not redeem their shares). ²⁸ These authors evaluated claims about the advantages SPACs offer over traditional IPOs: that they provide a less expensive, faster, and more certain route to the public markets; that they provide a path to being a public company that is often unavailable to firms engaged in complex or uncertain businesses that may be difficult to value; and that they provide more equal access to ordinary investors than alternatives such as private equity.²⁹ The authors found that SPACs fail on all fronts, largely because of the dilution built into the SPAC structure, and that SPACs tend to drop by at least one third of their value within a year of the merger.³⁰

Minmo Gahng, Jay R. Ritter, and Donghang Zhang, in examining SPACs from 2010 to 2020, similarly found that SPAC returns tend to be negative, though cash-weighted returns are less so.³¹ They also found that going public via a SPAC transaction is much more expensive for a private firm than undertaking a traditional IPO.³² However, they found that sponsors take large haircuts and underwriters of SPACs surrender substantial commissions for weak deals, meaning when a SPAC experiences high redemption rates after announcing a merger.³³

Finally, in a concise overview of the SPAC market as of the summer of 2021, Max H. Bazerman and Paresh Patel also suggested that the SPACs of 2020–2021 are not monolithic in type and have in fact been evolving over the course of the boom. The authors suggested that although not all SPACs are successful, they offer financing opportunities “that compete with later-stage venture capital, private equity, direct listings, and the traditional IPO process [and provide] an infusion of capital to a broader universe of start-ups and other companies, fueling innovation and growth.”³⁴ They noted that although SPACs had a “questionable start” as blank check companies and have existed as a “niche” “cottage industry” for most of the intervening years, the format has gone mainstream.³⁵

B. The SPAC Litigation Deluge

The structure of a SPAC lends itself to various critiques, and thus, legal claims. De-SPAC transactions occur, by definition, under significant time pressure. Moreover, neither the management (via the sponsor promote) nor the underwriter (via commissions) of the SPAC are compensated at all unless a transaction actually occurs. This setup creates incentives for sponsors to close a transaction—perhaps any transaction—rather than liquidate the trust. Additionally, the twenty-four-month time limit means that the SPAC may lack the means or opportunity to conduct sufficient diligence on the target or adequately evaluate the full universe of merger options. Moreover, as the end of the time limit approaches, targets may have increased leverage in negotiations with the SPAC, and though it may serve the sponsors and managers to close the deal before the deadline, shareholders might be better served by extending the deadline or waiting for a more attractive deal.³⁶ PIPE financing may give rise to additional conflicts of interest by allowing a merger to close at the cost of substantial dilution for the original SPAC shareholders.³⁷

Failure to disclose these conflicts could lead to lawsuits under the securities laws.³⁸ Moreover, SPACs are vulnerable to lawsuits alleging that sponsors breached their fiduciary duties in pursuing the merger, and they may face greater judicial scrutiny of these claims because the SPAC directors may not be disinterested.³⁹ The de-SPAC transaction may be subject to lawsuits both before and after the merger under Rule 14a-9, which governs the content of proxy disclosures. Broadly, SPACs (and their targets, once the transaction closes) are also public companies and therefore subject to the reporting requirements and fraud prohibitions of the federal securities laws, and thus, false statements and inadequate periodic disclosures may give rise to liability.⁴⁰

Practitioner reports raising alarm about rising SPAC-related litigation began in earnest in spring 2021.⁴¹ This coincided with multiple announcements that the SEC would scrutinize SPACs more closely.⁴² Various journalists and industry participants have reported informal tallies,⁴³ but there has so far been no deep dive into the characteristics and drivers of these lawsuits. In the recent surge of SPAC litigation, which claims predominate, and why? What are the characteristics of de-SPAC transactions that generate lawsuits versus those that do not? Who are the plaintiffs and firms bringing these lawsuits? More importantly, does this surge in litigation reflect SPAC quality, and does it offer a remedy to any of the potential negative outcomes arising from the controversial features of the SPAC format? This Article makes a first attempt at answering these questions.

II. DATA

To assess the recent increase in SPAC litigation, I compose two samples: a sample of lawsuits and a sample of transactions. For my sample of lawsuits, I search Bloomberg Law for dockets in federal district courts, Delaware Chancery Court, and New York Supreme Court⁴⁴ containing any references to special purpose acquisition companies. I then manually screen the complaints and dockets of these lawsuits to determine whether the lawsuit arises from a de-SPAC transaction,⁴⁵ and if so, what claims are brought.⁴⁶ I also gather information on plaintiff law firms and outcomes (if any) from these dockets. My search extends from January 1, 2017, to June 30, 2021.

Next, I compose a sample of all SPAC transactions from January 1, 2014, to July 31, 2021, from SPACInsider and the SEC EDGAR website. I use this range to account for several factors. First, although most claims in my sample are securities claims that have relatively short limitations periods, there are a non-trivial number of contract claims whose statute of limitations is significantly longer. However, my 2017 docket search captured very few lawsuits involving SPACs, and only one involved a transaction that occurred before 2014. I include lawsuits that were filed before June 30, 2021, but many of the cases in my sample are merger objection cases that are filed before the closing of the transaction; accordingly, I extend my transaction sample an additional month. The SPACInsider database furnishes redemption rate, IPO proceeds, implied enterprise value, and warrants issued in the IPO for the majority of these transactions (for those that are omitted, I use SEC EDGAR). I search the websites of the target firm for each transaction to find the target’s age at the time of the de-SPAC. To assess the quality of the sponsors, I code the number of SPACs each management team has participated in at the time of the de-SPAC transaction, which I source from SPACInsider or internet searches.⁴⁷ Finally, I take data on returns and dividends for all merged companies from Compustat Daily.⁴⁸

III. DESCRIPTIVE STATISTICS AND EMPIRICAL ANALYSIS

In this Part, I first compare the characteristics of de-SPAC transactions that generated lawsuits to those that did not. I then examine the attributes of the lawsuits in my sample. Finally, I examine the associations between lawsuits and various transaction characteristics.

A. Comparing Transactions that Generated Lawsuits to Those that Did Not

De-SPAC transactions that are subject to at least one lawsuit differ along a few key dimensions from those that are not. These descriptive statistics are reported in Table 1. First, the redemption rates of the transactions that generated lawsuits are significantly lower. The average percentage of shareholders that opted to redeem their shares in de-SPAC transactions that generated lawsuits is roughly 21%; the rate is more than double in de-SPAC transactions that generated no lawsuits at nearly 45%. Perhaps unsurprisingly, the de-SPAC transactions generating lawsuits have significantly higher implied enterprise values: roughly $2.15 billion as opposed to roughly $1.4 billion for de-SPAC transactions that did not draw lawsuits. Transactions generating lawsuits also originated from SPAC IPOs with higher proceeds than those which did not generate lawsuits, with averages of roughly $369 million and $256 million, respectively. Transactions generating lawsuits offer a smaller percentage of a warrant (that can later be used to purchase a share) with each unit sold in the IPO: sued transactions offer an average of 0.44 warrants per unit, as opposed to unsued transactions, which offer an average of nearly 0.55 warrants per unit. Consistent with industry commentary, the age of the target firm is lower for de-SPAC transactions that generate lawsuits with an average of twelve years versus nearly forty-three. However, the median target firm ages are nine and ten years, respectively, and therefore this difference is not significant.⁴⁹ Finally, de-SPAC transactions generating lawsuits take about one month longer on average to complete, at 22.4 versus 21.36 months. Although I compare and report the average three-day, seven-day, fourteen-day, thirty-day, and ninety-day post-merger returns for de-SPAC transactions that were sued versus those that were not, there is no statistically significant difference.

Table 1. Characteristics of Sued and Unsued De-SPAC Transactions
	Sample of Sued De-SPACs				Sample of Unsued De-SPACs
	Mean	Median	Standard Deviation	Obs.	Mean	Median		Standard Deviation		Obs.	t-stat
Redemption Rate (%)	21.41995	.4683396	31.41641	62	44.83333	50.95	38.0758		168		4.3270
Implied Enterprise Value ($m)	2150.54	1283.5	2739.276	62	1399.343	925	1814.378		165		-2.3949
IPO Proceeds ($m)	369.3452	250	347.367	62	255.9107	229.5	178.7456		168		-3.2349
Warrants	.4442623	.5	.2057031	61	.5477912	.5	.2635458		166		2.7721
Target age at SH vote (years)	12.09677	9	11.54849	62	42.92216	10	218.1146		167		1.1107
Months to complete	22.40323	24	2.58913	62	21.3631	24	3.745537		168		-2.0148
3-day returns	-.0467387	-.0716895	.1475693	28	-.0051028	-.0234741	.1691097		81		1.1585
7-day returns	-.049506	-.1012345	.2070382	53	-.0304111	-.054142	.3861426		142		0.3418
14-day returns	-.0338234	-.0839047	.2580448	54	-.0118041	-.0599034	.653251		141		0.2403
30-day returns	-.0358618	-.1304813	.3650061	29	-.0495576	-.0575954	.2386171		77		-0.2258
90-day returns	-.0484598	-.1514094	.4531122	36	-.0102963	-.0514618	.4307399		84		0.4379
Notes: The sample of sued transactions includes all lawsuits involving a de-SPAC transaction filed between January 1, 2017, and June 30, 2021, located on a Bloomberg Law search of all federal, Delaware Chancery, and New York Supreme Court dockets. The full sample includes all de-SPAC transactions completed between January 1, 2014, and July 31, 2021, sourced from SPACInsider.

In Table 2, I report the most common industries represented among the target firms of sued and unsued de-SPAC transactions, based on Fama-French 48 industry classification. The business services industry supplies the target firms for many de-SPAC transactions that are sued and many that are not: 26.67% and 24.85% respectively. While 13.3% of the target firms in sued transactions come from the automotive industry, only 5.45% of the target firms that do not generate lawsuits are in this industry. Similarly, a higher percentage of target firms that draw lawsuits are involved in electrical equipment (8.33%) than those that do not (1.82%). Conversely, transactions involving petroleum and natural gas targets comprise 4.85% of the unsued transactions, but none of the transactions generating lawsuits. While 10.3% of unsued transactions involve pharmaceutical targets, only 3.3% of the sued transactions do. It is interesting to note that across almost all industries reported in this table, redemption rates are higher, sometimes significantly, for the transactions that are not sued than for those that are (the exception is the electrical equipment industry, which furnished just 1.82% of the target firms for unsued de-SPAC transactions).

Table 2. Industries of Target Firms in Sued and Unsued De-SPAC Transactions Based on Fama-French 48 Classification
	Sample of Sued De-SPAC Transactions						Sample of Unsued De-SPAC Transactions
Industry	Freq.	%	Mean Redem. Rate	Mean Ent. Value	Mean IPO Proc.	Mean Target Age	Freq.	%	Mean Redem Rate	Mean Ent. Value	Mean IPO Proc.	Mean Target Age
Pharmaceutical Products	2	3.33	7	405	93	3	17	10.30	50	615	124	7
Business Services	16	26.67	36	2571	463	14	41	24.85	43	1832	324	69
Automobiles and Trucks	8	13.33	4	2820	512	7	9	5.45	18	2161	258	29
Retail	4	6.67	16	1213	278	19	7	4.24	71	507	131	15
Petroleum and Natural Gas	0	0					8	4.85	32	955	312	7
Entertainment	3	5	52	760	149	4	6	3.64	53	1137	266	15
Electrical Equipment	5	8.33	41	1291	294	26	3	1.82	20	964	185	18.3
Banking	3	5	27	2689	397	9	6	3.64	43	3367	241	15
Other	19	31.67					68	41.2
Notes: This table includes only industries that comprise roughly 5% or more of the target firms in either sample.

B. Incidence and Attributes of SPAC-Related Lawsuits

In Tables 3, 4 and 5, I report the incidence and characteristics of the lawsuits in my sample. Table 3 reports lawsuits by claim, court, and year. The most prominent observation is the dearth of SPAC-related lawsuits in 2017, 2018 and 2019, the dramatic rise from 2019 to 2020 (from nine lawsuits to forty-six), and the near-doubling of that number in the first half of 2021 alone (to eighty-nine).⁵⁰ Lawsuits filed in federal and New York Supreme Courts are largely responsible for this spike (although Delaware has seen a surprising rise—from zero to thirteen lawsuits—in the first half of 2021). The rise in lawsuits generally corresponds with the increase in total SPAC transactions, although the lawsuit curve is shorter and steeper in 2020 and 2021. Notably, the increase in lawsuits corresponds with a sizable decrease in the average redemption rate for all de-SPAC transactions in 2020 and the first half of 2021.

I further tabulate the claims for each lawsuit (I note here that many lawsuits have more than one claim). I report only the most common claims, which are Rule 10b-5 claims, Rule 14a-9⁵¹ claims, state law claims for breach of fiduciary duty, and contract claims.⁵² The most dramatic jump has been in claims brought under state fiduciary law in 2020 and 2021, followed by Rule 10b-5 claims. Rule 14a-9 claims experienced a less pronounced jump, and contract claims have remained low and relatively stable over all the years of the sample. section 11 claims have predictably been virtually nonexistent.

Table 3. Lawsuits for Sued Transactions by Main Claim Types (January 1, 2017–June 30, 2021)
Year	10b5 Claims	Sec. 11 Claims	14a Claims	State Fid. Duty Claims	Contract Claims	Total Lawsuits	Federal Court	Del. Ch. Court	NY Sup. Court	Total de-SPACs	Mean Redem. Rate of Total de-SPACs (%)
2017	1	0	0	1	2	4	1	1	2	13	47.39
2018	0	0	0	0	1	2	1	1	0	22	54.05
2019	5	2	8	0	0	9	9	0	0	28	64.96
2020	9	0	11	30	8	46	21	0	25	64	37.45
2021 (as of June 30)	38	1	18	42	4	89	56	13	20	85*	22.98
Total	53	3	37	73	15	150	88	15	47	212
Notes: Each individual lawsuit may have more than one main claim type. All are tabulated here. Less common claim types, such as unjust enrichment and corporate waste, have been omitted from this table. *Reports transactions closed as of July 31, 2021

Figure 1 illustrates the timing of these claims. Eighty percent (88) of the claims brought under Rule 14a-9 and state fiduciary duties are brought before the de-SPAC merger, meaning that these claims seek injunctions.⁵³ The remaining 20% (22) of these claims are brought after the merger for damages. Conversely, 92% (49) of the Rule 10b-5 claims in my sample are brought after the merger.

Figure 1. SPAC Litigation Timeline

I also report in Table 4 the transaction characteristics associated with each type of claim. Transactions associated with contract claims have by far the highest average redemption rate at 35.44%, the lowest average SPAC IPO proceeds at $247.87 million, and take the longest to complete at 23.4 months. Redemption rates for other claim types range from 13.44% to 18.73%, and IPO proceeds from $384.68 million to $412.18 million. Transactions targeted with contract and state fiduciary claims are associated with the highest implied enterprise values, at $2.612 billion and $2.521 billion; Rule 14(a) and Rule 10b-5 claims target transactions with median $2.146 billion and $2.048 billion respectively. Warrants range between 0.4 and 0.49 per unit, and average target age from 9.55 to 13 years.

Table 4. Transaction Characteristics by Claim Type
	10b5			14a			State Fiduciary Duty			Contract
	Mean	Med.	Obs.	Mean	Med.	Obs.	Mean	Med.	Obs.	Mean	Med.	Obs.
Redemption Rate (%)	14.5	.1	20	18.732	.1	25	13.44197	.1	39	35.44367	24.11834	10
Implied Enterprise Value ($m)	2048.775	1046.5	20	2146.336	1267	25	2521.595	1570	39	2612.36	1504	10
IPO Proceeds ($m)	412.18	236.9	20	402.452	280	25	384.6821	280	39	247.87	230	10
Warrants	.4710526	.5	19	.49	.5	25	.3970085	.333	39	.4	.5	10
Target age at SH vote (years)	9.55	7.5	20	10.6	5	25	13	10	39	12.9	9	10
Months to complete	21.75	24	20	22.8	24	25	22.69231	24	39	23.4	24	10

Finally, in Table 5, I tabulate the plaintiff law firms associated with the total number of lawsuits, as well as with each type of claim. I classify plaintiff firms as top plaintiff firms, entrepreneurial SPAC firms, entrepreneurial emerging firms, and top defense firms. Top plaintiff firms are those that appear on the Legal 500 list for securities plaintiff litigation.⁵⁴ These are Berman Tobacco, Bernstein Litowitz, Grant & Eisenhofer, Labaton Sucharow, Pomerantz, Quinn Emmanuel, and Robbins Geller. Entrepreneurial SPAC firms are those that brought 5% or more of the lawsuits in my sample. These are Brodsky & Smith, Monteverde & Associates, Moore Kuehn, Pomerantz, Rigrodsky Law, and Robbins Geller. Entrepreneurial emerging firms in my sample are those identified by Klausner and Heglund.⁵⁵ The emerging entrepreneurial firms in my sample are Glancy Prongay & Murray, Kahn Swick & Foti, and the Rosen Law Firm. Finally, top defense firms in my sample are King & Spaulding, McDermott Will & Emery, and Williams & Connolly.

The entrepreneurial SPAC firms lead the pack, with more than twice as many lawsuits as any other category. Notably, the primary main claims driving this result are Rule 14a-9 proxy fraud claims at twenty-one and, even more pronounced, claims under state fiduciary law at fifty-three (hereinafter I refer to these collectively as “merger objection claims”). Rule 10b-5 claims are relatively stable across the three categories of traditional plaintiff firms, with nineteen by top plaintiff firms, sixteen by entrepreneurial SPAC firms, and thirteen by other entrepreneurial emerging firms. The firms traditionally serving defendants, by contrast, are almost exclusively involved in SPAC-related lawsuits by virtue of contract claims, which form a small minority of the main claim types that I tabulate. These claims typically involve disputes among management, or between sponsors/management and PIPE investors, which likely accounts for the involvement of non-plaintiff firms.

Table 5. Lawsuits by Firm
	Total Lawsuits	10b5	14a	State Fiduciary Duty	Contract
Top Plaintiff Firms	27	19	4	4	1
Entrepreneurial SPAC Firms	82	23	23	55	0
Entrepreneurial Emerging Firms	14	13	4	3	0
Top Defense Firms	7	0	0	1	5

C. Empirical Analysis

Table 6 shows the results of OLS regressions in which the dependent variable is a dummy equal to one if the de-SPAC transaction generates at least one lawsuit, and the independent variable is redemption rate. I control throughout for industry using a dummy variable equal to one if the target firm of the de-SPAC transaction is in an industry found by other studies to be particularly vulnerable to securities litigation, including the biotechnology, computer hardware, electronics, retail, or computer software industries.⁵⁶ I also control for the log of implied enterprise value of the transaction to assess whether lawsuits are driven by the estimated value of the deal. I control for the target age in years to test anecdotal claims that plaintiff lawyers target de-SPAC transactions involving younger firms. I also control for several proxies for the quality of the de-SPAC merger, including the log of the IPO proceeds of each transaction⁵⁷ and the number of warrants per unit issued in the IPO.⁵⁸ Finally, I use the number of SPAC transactions the management team had completed prior to the closing of the transaction as a proxy for quality of the management team.⁵⁹ All regressions include robust standard errors. To control for the possibility that plaintiffs simply brought more lawsuits at the same time due to some unobserved trend, all regressions include year fixed effects.

The coefficient on redemption rate is negative and statistically significant in all specifications. The coefficient on redemption rate is relatively stable across specifications and is significant at the 5% level in the final specification which includes the most controls (it is significant at the 1% level in several other specifications). The likelihood of a lawsuit rises roughly 0.26% for every 1% decrease in redemption rate. In other words, a de-SPAC transaction with a 25% redemption rate is 13% more likely to generate at least one lawsuit than a transaction in which 75% of the shareholders redeem their shares in advance of the merger.

Table 6. Probability of a Lawsuit
	(1)	(2)	(3)	(4)	(5)	(6)
	Lawsuit Dummy	Lawsuit Dummy	Lawsuit Dummy	Lawsuit Dummy	Lawsuit Dummy	Lawsuit Dummy
Redemption Rate	-0.00309^***	-0.00270^**	-0.00281^**	-0.00277^**	-0.00262^**	-0.00262^**
	(-4.05)	(-3.18)	(-3.30)	(-3.23)	(-3.01)	(-3.00)
Vulnerable Industry Dummy	0.0153	0.0414	0.0472	0.0472	0.0553	0.0575
	(0.25)	(0.64)	(0.73)	(0.73)	(0.84)	(0.86)
Log Enterprise Value ($m)		0.0431	0.0465	0.0312	0.0259	0.0274
		(1.45)	(1.56)	(0.75)	(0.61)	(0.63)
Target Age (years)			-0.000277^**	-0.000257^*	-0.000222	-0.000222
			(-2.68)	(-2.24)	(-1.92)	(-1.91)
Log IPO Proceeds				0.0298	0.0313	0.0338
				(0.51)	(0.51)	(0.55)
Warrants					-0.138	-0.142
					(-1.14)	(-1.17)
Repeat Player						-0.00703
						(-0.29)
Year Fixed Effects	Yes	Yes	Yes	Yes	Yes	Yes
_cons	0.211^**	-0.657	-0.714	-0.956	-0.784	-0.850
	(3.01)	(-1.08)	(-1.17)	(-1.23)	(-0.89)	(-0.94)
r2_a	0.0658	0.0714	0.0758	0.0724	0.0750	0.0710
N	230	227	226	226	223	223
Notes: T statistics in parentheses – ^* p < 0.05, ^ p < 0.01, ^* p < 0.001.

I then bifurcate the sample based on claim type. Table 7 shows the results of OLS regressions in which the dependent variable is a dummy equal to one if the de-SPAC transaction generates at least one merger objection claim (either a state fiduciary duty claim or a Rule 14a-9 claim) after dropping transactions that generate lawsuits but no merger objection claims.

Table 8 shows the results of OLS regressions in which the dependent variable is a dummy equal to one if the de-SPAC transaction generated at least one claim under Rule 10b-5 after dropping transactions that generate lawsuits but no Rule 10b-5 claims. I use identical controls as in Table 6,⁶⁰ and all regressions include year fixed effects. Although the samples are small, the coefficients on redemption rate are very similar to the one I find in Table 6. A 1% increase in redemption rate corresponds with a 0.25% decrease in the likelihood of a merger objection claim and a 0.22% decrease in the likelihood of a Rule 10b-5 claim.

Table 7. Probability of a Merger Objection Claim
	(1)	(2)	(3)	(4)	(5)	(6)
	Merger Objection Dummy	Merger Objection Dummy	Merger Objection Dummy	Merger Objection Dummy	Merger Objection Dummy	Merger Objection Dummy
Redemption Rate	-0.00294^***	-0.00267^**	-0.00275^***	-0.00266^**	-0.00254^**	-0.00254^**
	(-4.07)	(-3.31)	(-3.38)	(-3.24)	(-3.08)	(-3.06)
Vulnerable Industry Dummy	-0.0458	-0.0244	-0.0199	-0.0199	-0.0122	-0.0122
	(-0.80)	(-0.40)	(-0.33)	(-0.33)	(-0.20)	(-0.19)
Log Enterprise Value ($m)		0.0312	0.0343	0.00555	0.00668	0.00670
		(1.09)	(1.19)	(0.14)	(0.16)	(0.16)
Target Age (years)			-0.000200^*	-0.000159	-0.000144	-0.000144
			(-2.45)	(-1.69)	(-1.51)	(-1.51)
Log IPO Proceeds				0.0581	0.0499	0.0500
				(1.02)	(0.84)	(0.84)
Warrants					-0.103	-0.104
					(-0.87)	(-0.87)
Repeat Player						-0.0000783
						(-0.00)
Year Fixed Effects	Yes	Yes	Yes	Yes	Yes	Yes
_cons	0.213^**	-0.415	-0.468	-0.967	-0.769	-0.769
	(3.07)	(-0.71)	(-0.79)	(-1.29)	(-0.88)	(-0.87)
r2_a	0.0952	0.0965	0.0992	0.0990	0.101	0.0963
N	215	212	211	211	209	209
Notes: T statistics in parentheses – ^* p < 0.05, ^ p < 0.01, ^* p < 0.001.

Table 8. Probability of a Rule 10b-5 Claim
	(1)	(2)	(3)	(4)	(5)	(6)
	10b-5 Dummy	10b-5 Dummy	10b-5 Dummy	10b-5 Dummy	10b-5 Dummy	10b-5 Dummy
Redemption Rate	-0.00237^***	-0.00223^***	-0.00231^***	-0.00232^***	-0.00218^**	-0.00221^**
	(-3.74)	(-3.42)	(-3.48)	(-3.49)	(-3.21)	(-3.22)
Vulnerable Industry Dummy	-0.0277	-0.0134	-0.00745	-0.00756	-0.00170	0.00214
	(-0.64)	(-0.30)	(-0.16)	(-0.17)	(-0.04)	(0.04)
Log Enterprise Value ($m)		0.0166	0.0188	0.0263	0.0252	0.0287
		(0.77)	(0.86)	(0.97)	(0.91)	(1.03)
Target Age (years)			-0.000181^*	-0.000190^*	-0.000167^*	-0.000167^*
			(-2.48)	(-2.41)	(-2.19)	(-2.19)
Log IPO Proceeds				-0.0141	-0.00571	-0.00207
				(-0.27)	(-0.11)	(-0.04)
Warrants					-0.0531	-0.0629
					(-0.52)	(-0.62)
Repeat Player						-0.0150
						(-1.25)
Year Fixed Effects	Yes	Yes	Yes	Yes	Yes	Yes
_cons	0.170^**	-0.165	-0.201	-0.0896	-0.190	-0.306
	(2.88)	(-0.38)	(-0.46)	(-0.13)	(-0.23)	(-0.37)
r2_a	0.0956	0.0952	0.0974	0.0926	0.0867	0.0851
N	188	185	184	184	181	181
Notes: T statistics in parentheses – p < 0.05, ^ p < 0.01, ^* p < 0.001.

In Table 9, I drop de-SPAC transactions that generated no lawsuits and regress the number of lawsuits per transaction on redemption rate, including the same controls. There is no statistically significant association between the number of lawsuits and redemption rate, although interestingly, the number of lawsuits is negatively related to the vulnerable industry dummy at the 10% significance level in every specification. Less surprisingly, the number of lawsuits per transaction is positively related to the log of the implied enterprise value of the merger at the 10% significance level in the specification including all controls. It seems, accordingly, that while the likelihood of being sued at all is unrelated to deal size, in the subset of transactions that draw at least one lawsuit, large deals draw more litigation than small deals. I note, however, that the number of observations is small, and therefore the predictive power of these regressions may be limited.

Table 9. Number of Lawsuits in Sued De-SPAC Transactions
	(1)	(2)	(3)	(4)	(5)	(6)
	Lawsuits	Lawsuits	Lawsuits	Lawsuits	Lawsuits	Lawsuits
Redemption Rate	-0.00740	-0.00256	-0.00156	-0.00190	-0.00162	-0.00146
	(-1.18)	(-0.42)	(-0.29)	(-0.35)	(-0.31)	(-0.29)
Vulnerable Industry Dummy	-0.905^*	-0.894^*	-0.858^*	-0.849^*	-0.862^*	-0.823^*
	(-2.34)	(-2.50)	(-2.40)	(-2.33)	(-2.33)	(-2.32)
Log EnterpriseValue ($m)		0.525^**	0.578^***	0.626^*	0.648^*	0.675^**
		(3.28)	(3.76)	(2.49)	(2.66)	(2.75)
Target Age (years)			-0.0132	-0.0117	-0.0127	-0.0143
			(-0.64)	(-0.47)	(-0.47)	(-0.51)
Log IPO Proceeds				-0.100	-0.210	-0.128
				(-0.21)	(-0.42)	(-0.25)
Warrants					-0.590	-0.710
					(-0.64)	(-0.72)
Repeat Player						-0.109
						(-0.83)
_cons	2.788^***	-8.318^*	-9.301^**	-8.370	-6.413	-8.418
	(7.55)	(-2.47)	(-2.96)	(-1.42)	(-1.02)	(-1.22)
r2_a	0.0485	0.123	0.113	0.0982	0.0792	0.0693
N	62	62	62	62	61	61
Notes: T statistics in parentheses – ^* p < 0.05, ^ p < 0.01, ^* p < 0.001

In Table 10, I regress three, seven, fourteen, thirty, and ninety-day returns for the merged firms in my sample on number of lawsuits, controlling for the age of the target firm to assess whether there is a relationship between number of lawsuits and the ultimate success of the merger.⁶¹ There is no statistically significant association in any specification. Finally, to assess whether the likelihood of a 10b-5 lawsuit is related to returns on the merger, in unreported results, I regress a dummy equal to one if the transaction generated a 10b-5 claim on three, seven, fourteen, thirty, and ninety-day returns, controlling for firm age. There is no statistically significant association with returns in any specification.⁶²

Table 10. Returns
	(1)	(2)	(3)	(4)	(5)
	Day 3 Returns	Day 7 Returns	Day 14 Returns	Day 30 Returns	Day 90 Returns
Total Lawsuits	-0.0117	0.00131	0.0176	0.0110	-0.0109
	(-1.18)	(0.10)	(1.12)	(0.47)	(-0.43)
Target Age (years)	0.00000827	0.0000567^*	0.0000455^*	0.000174	0.0000264
	(0.69)	(2.21)	(2.28)	(0.21)	(0.45)
_cons	-0.00853	-0.0520^**	-0.0628^***	-0.0583	-0.0170
	(-0.50)	(-3.09)	(-3.85)	(-1.71)	(-0.40)
r2_a	-0.00569	-0.00888	0.00496	-0.0155	-0.0154
N	108	194	194	105	120
Notes: T statistics in parentheses – ^* p < 0.05, ^ p < 0.01, ^* p < 0.001. Returns are winsorized at the 1% level.

IV. THE ODDNESS OF THE SPAC LITIGATION DELUGE

The punchline result from my sample is an intuitively paradoxical one: that the likelihood of being sued increases for SPACs with lower redemption rates. One might more naturally expect to see lawsuits arising from de-SPAC transactions of lower quality; a high redemption rate would signal that the SPAC investors lack confidence in the proposed merger, and thus that the deal is likely to be worse. Intuitively, it seems that this should generate more lawsuits, not fewer.

There are several possible explanations for this result. First, it is possible that the transactions drawing lawsuits do, in fact, involve fraud. The fraud could induce investors not to redeem, meaning that the low redemption rates reflect the fact that shareholders were lied to, rather than the quality of the deal. This thesis is complicated somewhat by the fact that roughly half of the claims in my sample are merger objection claims that were brought before the transaction closed and shareholders redeemed their shares. In this scenario, it is possible that the lawsuit revealed the fraud and actually induced truthful disclosures that strengthened investors’ confidence in the deal, thereby inducing them not to redeem. Finally, it is possible that that plaintiffs are not targeting SPACs involving fraud, and the negative association between litigation likelihood and redemption rate arises for reasons unrelated to the quality of de-SPAC deals as measured by redemption rate. I assess each of these possibilities below.

A. SPAC Litigation Targets Fraudulent Transactions

One possible explanation for the negative association between the likelihood of a lawsuit and redemption rate is that the transactions that are challenged involve misrepresentations. If the management lies to its shareholders about the quality of its target and diligence, the shareholders may be confident that the deal is a good one and decline to redeem their shares—but this confidence is misplaced. The discovery of such misrepresentations could give rise to lawsuits even where shareholder redemption rates are low.

1. Post-Closing Lawsuits: (Mostly) Rule 10b-5

This seems like a straightforward explanation for SPAC-related lawsuits that are brought after the transaction closes. The majority of such claims in my sample are brought under Rule 10b-5.⁶³ These claims generally allege a sequence of misconduct that began before the merger and continued through the de-SPAC transaction. Although the recency of the litigation makes it difficult to assess, there are some early signs that these cases may have merit. While half of the merger objection lawsuits in my sample were voluntarily dismissed within the sample period, only a single lawsuit containing a 10b-5 claim was dismissed (out of fifty-three 10b-5 claims). The 10b-5 lawsuits appear to target the de-SPAC transactions with the youngest target companies and the shortest completion timelines, potentially indicating risky business combinations or subpar diligence. Moreover, this is the area in which highly ranked plaintiffs’ law firms have become involved in SPAC-related litigation. The top ranked firms in my sample filed nineteen Rule 10b-5 claims, as compared with four 14(a) claims and four fiduciary duty claims. However, because so few outcomes are available as a result of the longer litigation timeline for these cases, it is difficult to evaluate their quality. The Rule 10b-5 claims in my sample also usually involve defendant SPACs with the highest IPO proceeds (often associated with higher quality deals).⁶⁴ The average redemption rate of deals that draw 10b-5 lawsuits is only 14.5%. And finally, I find no statistically significant association between 10b-5 claims and returns on deals in any period. While this finding could be affected by the size of the sample and the availability of information, it may suggest that such lawsuits do not focus on the deals in which investors made out the worst.

There also appear (perhaps unsurprisingly) to be links between Rule 10b-5 claims and public enforcement regarding SPACs.⁶⁵ Rule 10b-5 claims began to climb in earnest in the first half of 2021, when the SEC announced that it would be scrutinizing SPAC deals more carefully.⁶⁶ This may simply indicate that plaintiffs’ lawyers are jumping on enforcement guidance to make their claims more plausible. However, of the three de-SPAC transactions that have so far generated SEC enforcement actions, two had previously generated multiple Rule 10b-5 lawsuits. The merger between SPAC Diamond Peak Holdings and Lordstown Motors drew SEC and Department of Justice probes in July 2021.⁶⁷ The deal, which was completed in October of the previous year, had already generated six Rule 10b-5 lawsuits by the end of the sample period. Similarly, the merger between SPAC VectoIQ and Nikola, which culminated in fraud charges against the combined company’s CEO in July 2021,⁶⁸ had drawn three Rule 10b-5 lawsuits during the sample period since its closing in June 2020.⁶⁹ Because the SEC is resource constrained, it is commonly thought that the charges it pursues have a high likelihood of merit.⁷⁰

Inquiry, 53 Duke L.J. 737, 763 (2003). That Rule 10b-5 lawsuits arose in significant quantity for these deals before the SEC inquiries suggests that plaintiffs’ lawyers in those specific cases were onto something and that at least in some instances, these lawsuits actually penalize misconduct.⁷¹

Though they comprise a minority of claims brought after the transaction, I note that there are also some early signs that at least some of the post-closing merger objections in my sample may have teeth. These claims consist of Rule 14a-9 claims alleging proxy fraud and state fiduciary duty claims (often, they are bundled together). Traditionally, post-closing lawsuits for breach of state fiduciary duty are brought by target shareholders alleging that they received an insufficient price for their shares. Analogous claims brought by SPAC shareholders, however, are acquirer shareholder claims, alleging that SPAC directors breached their fiduciary duties by allowing the SPAC to overpay for the target. In the absence of conflicts, such lawsuits are subject to the business judgment rule. This may explain why relatively few of the post-closing fiduciary duty lawsuits in my sample are couched in these terms. Rather, most of the post-closing fiduciary duty claims in my sample allege that the SPAC directors breached their duty of oversight by permitting the fraudulent statements alleged in the proxy.

One notable exception is In re Multiplan Stockholder Litigation⁷² in the Delaware Chancery Court. The case arose out of a transaction between Churchill, the SPAC, and Multiplan, a healthcare data analytics provider.⁷³ The crux of the SPAC shareholders’ allegations was that Multiplan’s largest customer, on which it was dependent, was forming an in-house competitor and planned to shift its business away from Multiplan, and that Churchill’s board deliberately failed to disclose this information in the proxy.⁷⁴ The complaint alleged that the SPAC directors, who were all appointed by and had previous ties with the SPAC sponsor, violated their fiduciary duties by “issuing a false and misleading proxy, harming stockholders who could not exercise their redemption rights on an informed basis.”⁷⁵ In a widely cited opinion, Vice Chancellor Lori Will denied the directors’ motion to dismiss the claims against the SPAC board and sponsor, finding that the claims were direct, rather than derivative, and therefore plaintiffs need not plead demand futility, and that the board conflicts meant that the transaction would be reviewed under the demanding entire fairness standard.⁷⁶ If these determinations hold after trial, they will likely be powerful tools for SPAC investors alleging that they were lied to in connection with a de-SPAC merger. The entire fairness standard only applies where there is a conflict of interest, but SPAC sponsors may often be conflicted, and where sponsors appoint boards with which they have financial ties, as they often do,⁷⁷ the threat of entire fairness review is likely to have bite. Moreover, unlike Rule 10b-5 lawsuits, which often take years to resolve, fiduciary duty cases in the Delaware Chancery Court are likely to move relatively quickly, suggesting that these may be the cases most likely to curb SPAC misconduct in the immediate future.

2. Pre-Closing Lawsuits: Merger Objection Claims

Pre-closing merger objection claims are a different beast from most Rule 10b-5 litigation. Much merger objection litigation is disposed of before the closing of the transaction. Thus, the effects of pre-closing merger objection litigation on de-SPAC transactions may, in theory, be quite direct; specific deals may be halted, or management may release additional information pertaining to specific aspects of the deal, giving shareholders greater confidence (or not, as the case may be). Rule 10b-5 litigation, by contrast, is notoriously slow, often taking years to be resolved.⁷⁸

The characteristics of transactions that drew the Rule 14a-9 and state fiduciary duty claims in my sample are reported in Table 4. I note that state fiduciary duty claim defendants boast the lowest mean redemption rate of the claim types in my sample at 13.44% (Rule 14a-9 claims correspond with slightly higher redemption rates, at 18.73%). De-SPAC transactions that are targeted by state fiduciary duty lawsuits have a higher mean enterprise value but lower IPO proceeds than those of Rule 14a-9 claims. They also issue fewer warrants, and the target companies are slightly older. All this indicates that along most metrics (redemption rate, warrants, and target age), lawsuits alleging breaches of state fiduciary duties tend to target de-SPAC transactions that generally appear to be higher quality deals.

If fraud explains the association between rising litigation likelihood and falling redemption rates, the merit of the pre-closing claims in my sample is complicated to assess. The redemption rate in de-SPAC transactions is tabulated very near the closing of the transaction, so redemption rates should, in theory, incorporate any information revealed in a pre-closing lawsuit. Accordingly, these lawsuits could be having one of two effects. First, it is possible that the pre-closing merger objection claims in my sample are halting some bad transactions and lowering redemption rates in deals that close by giving investors greater confidence in the deal. This could be the result of the supplemental disclosures that many defendants issue in response to merger objection litigation. These supplemental disclosures could correct any misrepresentations or omissions and make investors feel good about retaining their shares. In the best case, these disclosures could prompt heightened diligence in management’s pursuit of the deal. The second possibility is less rosy; merger objection claims could target fraudulent transactions, but nonetheless fail to induce investors to redeem, either because investors do not perceive these lawsuits to credibly signal fraud, or because SPAC managers, undeterred by the monetary and reputational consequences of these lawsuits, continue to lie to their investors. While merger objection claims are theoretically a promising means of improving de-SPAC transactions before they close, I argue that they do not appear to be fulfilling this role. If fraud causes investors to sue but prevents shareholders from redeeming, I argue that the more plausible explanation for the negative association between the likelihood of pre-closing merger litigation and redemption rate is that these lawsuits fail to induce investors to redeem their shares, or SPACs to be more truthful in their disclosures.⁷⁹

Merger objection litigation over the last decade has been aptly described as “schizophrenic.”⁸⁰ At its peak in 2013, a whopping 96% of announced mergers gave rise to litigation by investors, and 60% of the lawsuits were filed in the Delaware Chancery Court.⁸¹ These lawsuits drew widespread criticism on the ground that they largely lacked merit and that settlements were generally for pre-merger supplemental disclosures that did not benefit shareholders, but did generate lucrative fees for plaintiffs’ lawyers.⁸² In January 2016, the Delaware Chancery Court cracked down on these lawsuits in what proved to be a landmark decision, In re Trulia.⁸³ In that decision, the court declared its refusal to approve settlements in merger cases that do not provide “[m]eaningful [b]enefit” to shareholders.⁸⁴

The literature has demonstrated that the effect of Trulia, in addition to other concurrent cases raising the bar that plaintiffs must meet in merger objection cases,⁸⁵ was a plummet in the number of merger objection cases filed in Delaware.⁸⁶ To prevent plaintiffs from merely fleeing to other state courts, Delaware’s legislature also allowed for the adoption of forum selection bylaws prohibiting lawsuits in other states.⁸⁷ However, these provisions do not extend to Exchange Act claims in federal courts, and accompanying the drop in Delaware cases was a marked increase in merger-related lawsuits filed in the federal courts under Rule 14a-9. By 2018, one account found that only 9% of merger-related lawsuits were brought in Delaware, while 87% were brought in federal court.⁸⁸

In addition to circumventing Delaware’s strictures on merger litigation jurisdictionally, plaintiffs’ lawyers have also found creative ways to avoid the constraints on settlements for window-dressing disclosures and lawyers’ fees. Following Trulia dicta, many defendants have begun to make voluntary supplemental disclosures in response to merger objection lawsuits, thus rendering the claims moot, and paying plaintiffs’ counsel a mootness fee as long as those disclosures were of benefit to shareholders (even if not material to the vote).⁸⁹ Various commentators, including courts, have expressed skepticism about this practice, claiming that the supplemental disclosures in contemporary merger litigation confer no real benefit on shareholders. ⁹⁰ Nonetheless, a recent study has found that at least 63% of merger cases were disposed of with a mootness fee and that such fees appear to have entirely replaced formal settlements in merger objection cases in federal court.⁹¹

To investigate whether pre-closing merger objection claims improve de-SPAC transactions, I run unreported regressions in which the dependent variables are the three-day, seven-day, fourteen-day, thirty-day, and ninety-day returns on the deal,⁹² and the independent variable is a dummy equal to one if the transaction generated at least one pre-closing merger objection claim, controlling for target age. There is no statistically significant association in any specification. Thus, there is no evidence that transactions that draw a pre-closing merger objection claim perform better in the first three months than transactions that draw no lawsuits.

To assess the role of the supplemental disclosures that may be prompted by merger challenges, I use SEC EDGAR and internet searches to see whether defendant SPACs voluntarily released additional disclosures in response to pre-closing lawsuits. In my sample, defendant SPACs issued supplemental disclosures in response to pre-closing merger objection lawsuits 46.15% of the time. The average redemption rate of the de-SPAC transactions that were sued prior to the merger that did not issue supplemental disclosures is 19.11%, while the average redemption rate for those that did issue supplemental disclosures is 6.78%. However, this difference is not statistically significant.⁹³ The rate of supplemental disclosures in my sample appears to be substantially lower than that which other studies have documented regarding deal litigation in federal courts.⁹⁴ Half of the merger objection cases in my sample were voluntarily dismissed by the end of the sample period. Roughly half of those dismissals involved defendant SPACs that appear to have made no supplemental disclosures at all.

I also use SEC EDGAR and internet searches to examine the fees paid by SPACs in connection to these lawsuits. These fees are generally immaterial to the defendant companies that pay them and therefore are often not widely disclosed.⁹⁵ They also involve dismissal before certification of a putative class and are therefore not subject to approval by courts⁹⁶ (unsurprisingly, none of the merger objections in my sample involve on-the-docket settlements). Very few of the transactions in my sample disclosed mootness fees paid in connection with lawsuits; the average amount was $200,000. This is in line with estimates from other studies, which have found that mootness fees range in amount from $200,000 to $450,000 but have declined in more recent years.⁹⁷

There are two likely overlapping possibilities for why these lawsuits might not induce SPAC shareholders to redeem their shares, even if they target transactions that involve misrepresentations. First, shareholders may not believe that these lawsuits credibly signal fraud. Their ubiquity may mean that investors simply do not take these lawsuits seriously. The disclosures they prompt may not seem to add anything important. Previous literature has concluded that, even when they are made, the supplemental disclosures of yore did not influence shareholder voting outcomes,⁹⁸ and the current disclosures required in exchange for mootness fees need not even be material.⁹⁹ The amounts that SPAC defendants pay to make these lawsuits go away may not seem to investors like a penalty to remedy serious wrongdoing, but an added tax to make sure the deal closes on time.

There are other reasons that these pre-closing merger objections may not signal to investors that something is truly amiss. More than half (57%) of the merger objection lawsuits brought in New York Supreme Court are against SPACs that have a forum selection clause in the charter or bylaws delegating Delaware as the forum for any fiduciary duty litigation.¹⁰⁰ Of these, 76% were voluntarily dismissed within the sample period without litigation, suggesting two possibilities: (1) the plaintiffs filed first and researched the defendant firms later, discovering the forum selection provisions after the lawsuits were filed and then voluntarily dismissed them; or (2) the plaintiffs privately demanded fees from the defendant SPACs in return for withdrawal that were lower than the cost of litigating the forum selection provision, suggesting that the fees, and thus the settlement value of these cases, were very low. Neither option inspires confidence in the quality of these lawsuits.

Furthermore, the most frequently filing law firms’ litigation patterns in my sample suggest that these cases may not represent credible signals of misconduct. I report the plaintiff firms in my sample in Table 5. The three most frequently-filing plaintiffs’ firms in my sample—Brodsky Smith, Monteverde & Associates, and Rigrodsky Law—account for just over 40% of the lawsuits in my sample. These frequent filers appear to be small plaintiffs’ firms of between five and eight lawyers. Their prolific but largely unlitigated filings have been noted in other studies,¹⁰¹ leading commentators to remark that “these law firms appear to be more interested in collecting mootness fees than in actively litigating the cases that they file.”¹⁰² Moreover, the complaints filed in the New York Supreme Court, as noted by other commentators,¹⁰³ purport to seek an injunction blocking the merger, but do not include the separate motions for a preliminary injunction that would actually be necessary to put off the shareholder vote.¹⁰⁴ This account of entrepreneurial SPAC firms is consistent with many assessments in the literature of plaintiffs’ lawyers’ behavior in the securities and corporate context. One study postulates that the passage of the Private Securities Litigation Reform Act of 1994 (“PSLRA”), and the higher expenses involved in meeting its pleading standards, pushed many small firms away from 10b-5 class actions and toward corporate litigation, such as that challenging mergers.¹⁰⁵ Others note the rise in dismissals (used as a proxy for low-quality cases) concurrent with the rise in lawsuits brought by “emerging firms” in the securities arena generally.¹⁰⁶ Still others have noted that plaintiffs’ firms have proven resilient to attempts to crack down on nuisance litigation and have circumvented these efforts, particularly in the merger litigation context, by filing in federal courts or jurisdictions outside Delaware and by evading requirements for more useful disclosures by voluntarily dismissing cases in exchange for mootness fees.¹⁰⁷

The second reason that these lawsuits may not induce shareholders to redeem even if they target truly fraudulent transactions is that the fees paid to plaintiffs’ attorneys may be unlikely to deter such fraud. Unscrupulous SPAC managers could pay $200,000, issue supplemental disclosures, and continue to lie about the quality of the target or the diligence they conducted in order to close the transaction and receive their 20% promote. This may contrast with more traditional IPO litigation under section 11, as discussed in Section III.B.

Many of the regulatory and scholarly concerns for the welfare of SPAC investors revolve around issues that might be mitigated with improved disclosure, such as conflicts of interest, speedy deal process, and dilution. Pre-merger deal litigation could theoretically be a mechanism well-suited for providing greater transparency to investors. However, there are reasons to think that even if these cases are targeting fraudulent transactions, they fail to induce SPAC shareholders to redeem. If true, this explanation is a strong condemnation of merger litigation generally, and even more so in the SPAC context: in transactions that are known to be risky to investors, that are by their nature fraught with conflicts of interest, and in which fraud could plausibly be rampant, the type of lawsuit that, in theory, could be of the most preemptive benefit to shareholders is being leveraged by a small number of small firms for small fees at investors’ expense.

B. SPAC-Related Litigation Is Unrelated to Transaction Quality

Of course, it is possible that the SPAC-related lawsuits in my sample do not target fraudulent transactions, and that the lower redemption rates of the transactions that appear to draw lawsuits are not the product of misrepresentations. If this is the case, it appears that plaintiffs may simply have chosen lower-redemption SPACs to sue. The probability of being sued appears to be related neither to the size of the deal, nor the returns, nor the industry, nor the management. Accordingly, in the absence of fraud, we can say little more than that these lawsuits do not appear to be logically related to common metrics for transaction quality, including redemption rate.

There is some reason to think that not all of the low-redemption deals which appear more likely to draw lawsuits involve fraud. My sample suggests that the boom year for redemptions was 2019, with a mean redemption rate of 64.96% across all de-SPAC transactions completed that year. However, only nine SPAC-related lawsuits were filed. The mean redemption rate declined to 37.45% in 2020 as lawsuits climbed to forty-six and even further in the first half of 2021 to 22.98%, as lawsuits exploded at a whopping eighty-nine. Significantly, the first half of 2021 was also the time when the SEC, under the then-new Biden administration, began publicly to take aim at SPACs. The end of March and early April 2021 saw a highly publicized cluster of SEC releases and statements specifically geared at SPACs, addressing, among other issues, key filing issues,¹⁰⁸ accounting considerations,¹⁰⁹ and liability risk under the securities laws.¹¹⁰ By the end of April, reports were circulating that the SEC was considering new guidance on SPACs.¹¹¹ If fraud is the explanation for low redemption rates, then conversely, SPACs reporting high redemption rates are the ones that told the unpromising truth about their prospects and diligence, causing investors to redeem. But according to my sample, these candid, high-redemption SPACs proliferated in earlier years, while SPACs reporting the lowest redemption rates (resulting, presumably, from lying to their shareholders) ¹¹² did their lying concurrently—at least in part—with the announcement that regulatory scrutiny of SPACs was significantly on the rise. It seems counterintuitive that SPACs would be honest when no one was looking and engage in fraud just as the SEC announced that it would be looking very carefully.

To be sure, there is not complete alignment of timing—the SEC’s statements did not begin until April, meaning that SPACs closing earlier in 2021 would have no reason to be more truthful with their investors (other than the ascension of a more pro-regulation administration) than the SPACs before them. However, there may be some explanations for the relationship between redemption rate and lawsuit probability that do not involve fraud.

1. Post-Closing Lawsuits: Standing and Class Size

One potential explanation for the negative relationship between the probability of a lawsuit and redemption rate may be putative class size. In a post-closing lawsuit, fewer redeeming shareholders could mean a larger potential class of investors, which would presumably result in more damages, greater pressure to settle, and a larger potential payout, and therefore a more lucrative lawsuit for plaintiffs’ counsel.

This line of reasoning operates slightly differently for the different types of claims in my sample. Most directly, shareholders have standing in Delaware to challenge a merger under laws of fiduciary duty only if they owned stock at the time of the challenged transaction and throughout the litigation.¹¹³ This means that shareholders who redeem their shares before the merger are clearly out. Similarly, private plaintiffs are presumed to have standing under Rule 14a-9 if they were injured in connection with a proxy solicitation and if “reliance of some shareholders on the statement was likely to affect [how they voted].”¹¹⁴ Shareholders in SPACs can vote for the transaction and still redeem their shares, but in such a situation are unlikely to have been injured.¹¹⁵

Plaintiffs have standing under Rule 10b-5 if they purchased or sold securities in connection with manipulative or deceptive conduct.¹¹⁶ Such a class could encompass investors who bought the shares of the merged company on the secondary market in reliance on misleading statements issued before or in connection with the merger. Nonetheless, a large class of non-redeeming shareholders who bought their shares based on rosy statements about the deal could also form the basis of a lucrative class for an action under Rule 10b-5.¹¹⁷

If class size is the explanation for the negative relationship between litigation probability and redemption rate, then these cases may be opportunistic, rather than targeting the worst transactions. Larger classes likely involve larger damages, create the shadow of greater potential liability, and thus are likely to induce greater pressure to settle and probably a larger payout for plaintiffs’ lawyers.¹¹⁸ This may also be an explanation for the greater involvement of top tier plaintiffs’ lawyers that does not rely on merit; these firms generally have relationships with institutional investors who are well-positioned to be lead plaintiff in Rule 10b-5 class actions if they want to be and may deliberately target these cases based on potential payoff.

2. Pre-Closing Lawsuits: Litigation as a Substitute or Complement for Redemption

One possible explanation of the negative relationship between litigation and redemption rate in de-SPAC transactions for pre-closing merger challenges that does not involve fraud may be that SPAC shareholders are increasingly using litigation as a substitute or complement for exercising their redemption rights.

On its face, using litigation as a substitute for redemption makes little sense. The SPAC shareholders’ redemption right is essentially a free put option, allowing shareholders to costlessly back out of the transaction. Moreover, many redeeming shareholders do not entirely surrender their claims to the company should the merger prove to be a good one—they may keep their warrants and vote for the transaction, even if they choose to redeem their shares.

To be sure, freeriding on a lawsuit is also a costless option. There appears to be little downside to a nonplaintiff shareholder to watching such a lawsuit unfold. In the context of pre-closing merger objection litigation, any supplemental disclosures may improve deal quality (although, as discussed, this is unlikely), and although the sample is small, my results indicate that share prices of the merged company do not appear to suffer as a result of pre-closing merger challenges. But while the occasional shareholder may actually believe that a merger objection claim will increase the value of their post-merger shares, this appears unlikely based on the supplemental disclosures issued in my sample and given the dysfunctionality of much merger litigation generally. Indeed, it appears that many of these lawsuits are driven by plaintiffs’ lawyers in exchange for nominal fees rather than by SPAC shareholders. Accordingly, it seems generally improbable that the negative relationship between the likelihood of a lawsuit and redemption rate is the result of shareholders treating these options as substitutes.

It might also be possible that sophisticated investors, who may be more likely to redeem,¹¹⁹ are also more likely to sue as a means of extracting the most possible value from their shares. Although the most direct monetary gains would result if redeeming investors could bring post-closing lawsuits for damages, they generally lack standing to do this. It is also possible that sophisticated investors who redeem might bring pre-closing lawsuits in the hopes of improving the transaction and thus upping the value of their warrants (which they can retain through redemption). I note, however, that the vast majority of merger objection claims in my sample are brought by individual investors, rather than the institutional ones more likely to engage in sophisticated strategy. It is therefore not clear that litigation is being used as a complement to the redemption right intended to make money.

C. Summing Up the SPAC Litigation Deluge

If pre-closing merger challenges produce immaterial disclosures in exchange for nuisance fees, there does not appear to be a plausible interpretation of the negative relationship between lawsuit probability and redemption rate that redeems these lawsuits. If these challenges target high-quality transactions, they are unhelpful. It seems highly unlikely that they are a common or logical substitute or complement for redemption. And if they target fraudulent transactions, they seem to be a failure under the very circumstances where they could, in theory, be most useful. Proponents of merger litigation may argue that these cases provide an opportunity for plaintiffs to force SPACs to improve or abandon their acquisitions and are therefore valuable. This potential indubitably exists and may represent the optimal result for investors, who could redeem their shares, or even, in the best case, benefit from a better deal without the injury of a bad transaction necessitating after-the-fact recompense. But I argue that merger objection lawsuits as they play out on the ground are not performing this role and are therefore undesirable, irrespective of whether they target fraudulent or high-quality deals.

Lawsuits brought after the merger are somewhat more difficult to characterize, in part because the vast majority have not been resolved. If low redemption rates are the product of misrepresentations, these lawsuits are likely meritorious. They also probably are effective deterrents of bad conduct; large class actions are among the more terrifying prospects to corporate management,¹²⁰ and perhaps even more so these days for SPACs, which are facing increasingly narrow D&O policies to insure against such lawsuits.¹²¹ Class actions under Rule 10b-5 in particular are likely to be drawn-out affairs, and decreased insurance coverage may mean that the costs of such litigation may be more likely to fall on the defendant firm. But if the low redemption rates are the product of truthful disclosures and signal high-quality deals, the post-closing lawsuits challenging them may be opportunistic. Plaintiffs’ lawyers may be targeting these cases not because there is an indication of misconduct, but because a lower redemption rate means a larger class, more extensive purported damages, greater settlement pressure, and a higher potential payout.

Accordingly, it appears at this early stage that many of the lawsuits comprising the SPAC litigation deluge—the merger challenges brought before the merger—are accomplishing little other than a minimal payout for a few small plaintiffs’ firms. Claims brought after the merger closes may effectively punish fraud. But it is also possible that even some of these lawsuits may be brought for opportunistic, rather than meritorious reasons. And if this is the case, they may be creating a significant cost for the transactions that appear to be of the highest quality. Fully disentangling these competing explanations—that SPAC-related litigation targets fraudulent transactions, or in fact targets quite good transactions—is a complex and perhaps impossible task. But there is at least a credible argument that much of this litigation may be failing to improve SPAC transactions and may be brought for reasons unrelated to SPAC quality.

V. THE BIGGER PICTURE: COMPARING SPAC MERGER LITIGATION TO SECTION 11 LITIGATION

SPACs are engineered specifically to avoid the expensive and time-consuming IPO process. More specifically, they are engineered, in some respects, specifically to avoid liability exposure under the securities laws, which is particularly stringent for IPOs.¹²² Since the targets of SPACs go public through a merger instead of an IPO, they are governed by the regime for mergers instead of IPOs. In this section, I explore how, at this early stage, these different liability regimes stack up against each other.

A. Problems Avoided by SPACs: Securities Act Liability and the Forward-Looking Statement Safe Harbor

There are two main reasons commonly cited for the reduced liability exposure faced by SPACs. These are liability under section 11 and liability for forward-looking statements.

The Securities Act of 1933 governs liability for primary offerings, including IPOs. A company issuing securities is strictly liable under section 11 of the Securities Act for material misstatements and omissions in its registration statement, the instrument by which it must register new shares for sale with the SEC.¹²³ The company’s underwriters, officers, and directors are liable as well; although they may benefit from a “due diligence defense,” in practice, this defense is available only under a very demanding standard.¹²⁴ Section 11 liability is virtually nonexistent in connection with SPACs. There are several reasons for this. First, the SPAC IPO occurs when the SPAC is a shell company and therefore has almost nothing in the way of operations or financials to disclose.¹²⁵ Second, SPACs could face section 11 liability in connection with the shares that they issue to target shareholders or PIPE investors in connection with the merger. However, once these shares mix in the market with shares issued in the IPO, it is very difficult to “trace” them to the registration statement of a particular offering. Such “tracing” is a requirement for the standing of a purported section 11 plaintiff, meaning that these cases are likely to be rare.¹²⁶

The second reason commonly cited for going public via SPAC rather than via IPO is the safe harbor for forward-looking statements. The PSLRA allows issuers to make projections and forward-looking statements without fear of liability for such statements under the securities laws, as long as the statements are accompanied by meaningful cautionary language.¹²⁷ This safe harbor is unavailable in IPOs.¹²⁸ The ability to make forward-looking statements may be particularly valuable to pre-revenue SPAC targets, who do not yet have historical earnings with which to entice investors, or to firms in high-tech industries which require extensive start-up capital.¹²⁹ However, the demise of this advantage may be imminent;¹³⁰ regulators have hinted that the safe harbor may not apply to SPACs after all,¹³¹ and the House of Representatives has released draft legislation explicitly eliminating the safe harbor for SPACs.¹³²

B. Merger Liability for IPO Liability: The SPAC Lawsuit Swap

In going public via SPAC, firms essentially swap the IPO liability regime for the merger liability regime. What are the effects of this exchange? To examine how these lawsuits stack up against one another, I compare the merger objection lawsuits and unsued SPACs in my sample to a sample of IPOs from January 1, 2016, to July 31, 2021, matched with a sample of section 11 class actions from January 1, 2017, to June 31, 2021.¹³³ I gather my sample of section 11 class actions from the Stanford Securities Class Action Clearinghouse and the sample of non-SPAC IPOs from Zephyr.

Descriptive statistics are tabulated in Table 11. My total sample consists of 701 IPOs, 60 of which draw section 11 claims. Although the rate varies year over year (it spikes to over 17% in 2019, and the data for 2021 covers only the first half of the year, coming to nearly 3%), the average percentage of IPOs across the sample that draw a section 11 claim is 8.56%. This is far lower than the percentage of SPACs in my sample that drew merger objection claims during the same period (either under state corporate law or Rule 14a-9), which is 51.89%. Moreover, the average across the sample is understated since there are very few merger objection claims in the first three years of my sample; the average percentage in 2020 and 2021, when these lawsuits began to appear in earnest, is 67.69%.

The consequences of these lawsuits also appear to be dramatically different. The average settlement for section 11 lawsuits in my sample is roughly $4.5 million. In calculating this average, I include cases that were dismissed (where the settlement amount equals zero) and cases that are still ongoing (where the settlement amount is currently zero but may be significant when the case is resolved). This accounts to some degree for low settlement values in the last few years of the sample. But the $4.5 million average, though likely substantially understated, is still much larger than the settlements that have so far been disclosed for merger objections in my sample, which average $200,000. Indeed, the likely reason that so few of such settlements are publicly available is that they are so small as to be immaterial to the issuers and therefore need not be disclosed.

There is also a divergence in the plaintiffs’ firms that bring these cases. Section 11 lawsuits, across my sample, involve a top-tier plaintiffs’ firm 63.3% of the time, and this number is relatively stable year over year (ranging from 60% to 69%). Top-tier plaintiffs’ firms account for only 7.27% of the merger objection claims in my SPAC sample. Finally, the most commonly sued industries in the IPO sample are software and programming (21.67% of the sample) and biotechnology and drugs (11.67%). These are among the industries found in other studies to be particularly vulnerable to securities litigation.¹³⁴ By contrast, SPACs that draw lawsuits are generally not in these industries.

Table 11. Section 11 Lawsuit Descriptive Statistics
Year	Section 11 Lawsuits	Mean Settlement*	Percent Top Plaintiffs’ Firms¹³⁵	Total Non-SPAC IPOs	Percent Non-SPAC IPOs Sued Under Section 11
2017	13	$15,600,000	69.23%	155	8.38%
2018	11	$6,445,455	63.64%	125	8.8%
2019	20	$813,750	60.0%	115	17.39%
2020	11	$0	63.64%	137	8.03%
2021	5 (as of June 31)	$0	60.0%	169 (as of July 31)	2.96%
Total	60	$4,571,841	63.3%	701	8.56%
Notes: *Mean settlement calculations include settlement values for lawsuits that were dismissed and lawsuits that are ongoing.

So, what can we make of all this? In terms of sheer litigation volume, SPACs appear to have fallen from the frying pan into the fire. Though designed in some respects specifically to avoid litigation under section 11, SPACs draw merger objection claims with dramatically greater frequency, and as previously discussed, the bulk of these claims are brought before the merger. However, insofar as information is available, these claims appear to settle for far lower amounts, meaning that for individual SPACs, the increased probability of a lawsuit may be outweighed by the apparently low probability of having to pay an expensive settlement. The majority of section 11 claims are brought by top-tier plaintiffs’ law firms, which may indicate that they are stronger claims than the merger objections, which are brought by a handful of quite small entrepreneurs.

For IPOs, the policy choice has been to wield the heavy cudgel of virtually strict liability against those perceived to have the best knowledge about the newly public firm. This choice was made on the basis that firms new to the market, about which little is known, without any public history and potentially few profits for investors to assess, could be prime candidates for fraud. Investors in such firms have no source of information other than the firm itself, and Congress created the rigid liability provisions of the Securities Act to make that information as accurate as possible.¹³⁶ These provisions create the specter of extraordinary costs for those who violate them¹³⁷ and are thus commonly regarded as “well suited to deter misreporting.”¹³⁸ Under the current legal framework, SPACs do not face this standard. Rule 10b-5 plaintiffs must plead specific allegations of, at the least, recklessness. Rule 14a-9 litigants must prove negligence to prevail,¹³⁹ which may be a more demanding task than it appears.¹⁴⁰ Under Delaware law, acquirers’ challenges to mergers under state corporate law are usually reviewed under the deferential business judgment rule. Although there are good arguments that SPAC mergers, in view of potential management conflicts, should be reviewed under the more demanding “entire fairness” standard,¹⁴¹ any of these standards is harder work for plaintiffs than the virtually strict liability of section 11.¹⁴²

None of these concerns motivating the rigidity of section 11 liability are any less salient in SPACs, and given the conflicts commonly cited with respect to the SPAC form, they are arguably more intense. Yet, the merger litigation that replaces the Securities Act liability in the SPAC context appears to be significantly less costly to issuers—and indeed, that is probably one reason that the SPAC form is popular. It may be that merger litigation simply does not cost enough to induce SPACs to make the disclosures that would be optimal for investors in newly public firms.

But although most SPAC merger litigation may be insufficiently costly compared to Securities Act litigation, it is simultaneously too costly in that it is indiscriminate. Section 11 plaintiffs are constrained by unyielding standing rules¹⁴³ and generally have a fleeting one-year limitations period in which to make their claims.¹⁴⁴ These restrictions manifest in the relatively low number of IPOs that draw section 11 lawsuits—in my sample, less than 9%.¹⁴⁵ Although the limitations periods for much merger litigation are not much longer (often two or three years), standing rules are broader.¹⁴⁶ More importantly, the current regime for merger litigation generally allows for quick settlement for small fees without judicial oversight, meaning that no party involved has incentives to put the brakes on these lawsuits; plaintiffs may bring them irrespective of the merit of the case, defendants find it less expensive to pay than to challenge, and courts are not in a position to curtail the fees that are unwarranted or heighten those that are not.¹⁴⁷

A high percentage of SPACs in the most recent years have drawn merger objection lawsuits. If these SPACs are fraudulent, $200,000 in fees is likely too low to create effective deterrence. If they are not, then many SPACs may be paying a “deal tax” that others have argued, in the standard merger context, is inappropriate.¹⁴⁸

VI. POLICY IMPLICATIONS

Proposals for improving SPACs abound; academics,¹⁴⁹ regulatory agencies,¹⁵⁰ and even members of Congress¹⁵¹ are busily gathering information and proposing reforms. Many of these proposals involve heightened disclosures of the various conflicts and relationships inherent in the structure of SPACs. These include, to name a few, sponsor compensation and the incentives sponsors have to close even a subpar deal, the stake that sponsors will have in the merged company, information about the diligence and negotiations that occurred during the merger process, and the probability and extent of dilution for shareholders who continue to hold their shares after the merger.

But perhaps these potential hazards are features, rather than bugs, of the SPAC structure. SPACs, say their proponents, “offer investors and targets a new set of financing opportunities that compete with later-stage venture capital, private equity, direct listings, and the traditional IPO process. They provide an infusion of capital to a broader universe of start-ups and other companies, fueling innovation and growth.”¹⁵² Of course, this breadth comes at a cost. SPACs are common for “firms [that] are speculative, have enormous capital requirements, and can provide only limited assurances on near-term revenue and viability.”¹⁵³ Such investments are obviously risky. But one might assert that investors in SPACs understand this, or if they do not, they should. On this view, investors get to participate in these ostensibly high-reward deals in no small part because they lack the protections of a traditional IPO, and this bargain is a reasonable one that should be left intact.

The success of SPAC-related litigation depends on the camp into which one falls. Much of the SPAC litigation deluge is in fact composed of pre-closing merger challenges that probably generate little but low fees for plaintiffs’ counsel. But if SPAC investors accept less information as part of a deliberate bargain for the opportunity to invest in ventures not normally available to them, then perhaps this litigation is functioning more or less as intended, and pre-closing merger challenges represent a minor deal tax¹⁵⁴ that all parties involved are willing to pay.

If, on the other hand, SPACs are not functioning as intended—if the informational goals of SPACs are analogous to those of standard IPOs, and shareholders have not knowingly bargained for them to be otherwise—then it appears that much SPAC-related litigation is not serving this goal. Rather, the merger challenges brought before the lawsuit are not promoting meaningful disclosure, and even a percentage of the smaller proportion of lawsuits brought after the merger may target transactions that can produce the biggest payout for plaintiffs’ counsel, rather than targeting true misconduct. A natural conclusion of this line of thinking is that the system of private enforcement is currently ill-suited to correct the deficiencies of SPACs and that greater public intervention, such as government enforcement actions and more stringent regulation, may be necessary.

But this early sample of SPAC-related lawsuits has broader implications for the utility of shareholder litigation as a policing mechanism. The consolidation of the U.S. public equity markets has been the source of commentary for some time.¹⁵⁵ The traditional IPO process has become the province of “large, late-stage companies.”¹⁵⁶ Concurrently, small- and medium-cap companies—which have “[t]raditionally . . . delivered both higher risk and higher returns”¹⁵⁷—have become far less accessible to the average investor.¹⁵⁸ The SPAC boom may be in part interpreted as a testament to retail investor appetite for such high-risk, high-return opportunities; retail investors eying the profits of venture capital and private equity moguls when the markets are rallying and money is flowing freely may well think, “Why not me?” Inaccessibility is a two-way street—smaller, growing firms that cannot access the liquidity of public markets could be limited in their opportunities for “economic growth, hiring, and wealth creation.”¹⁵⁹

While Congress and the SEC have undertaken efforts to make the traditional IPO process more inclusive,¹⁶⁰ the trend toward fewer, larger IPOs has proven persistent. It is thus not surprising—and is perhaps commendable—that private actors have experimented with alternative paths to the public markets. SPACs may not be the optimal result of these experiments. But in the absence of regulation that actually results in IPOs for more emerging, high-growth companies, such experimentation is likely to continue. Strong policing mechanisms for these experiments are necessary. Ex ante regulation, by its nature, is one or several steps behind such experiments, as SPACs aptly demonstrate. Regulation by agency enforcement is controversial, and even if it were not, agencies are resource-constrained and cannot catch everything. Shareholder litigation under broad, existing causes of action, such as Rule 10b-5, proxy fraud, and breach of fiduciary duty, constitutes a critical backup protection for investors in the face of private ordering experiments.

That some experiments, like SPACs, are designed to avoid certain types of liability (such as section 11) makes the efficacy of the remaining causes of action even more important. But if the SPAC-related litigation so far is anything to go by, it is unclear whether shareholder lawsuits are currently up to the job. Based on my sample, a very small subset of these lawsuits—post-closing merger challenges in the Multiplan mold—have resulted in standards that could improve a substantial shortcoming of the SPAC structure. The results of another 30% of these lawsuits—Rule 10b-5 claims—are as yet undetermined, but there are both meritorious and opportunistic explanations for these lawsuits, and the end results may lie somewhere in the middle. By far the largest bloc, comprising roughly half the claims in my sample, consists of pre-closing merger objections that are likely to perform little, if any, effective policing function.

This is most unfortunate, because in theory, these lawsuits could be among the most immediate and effective checks available against predatory structures innovated by private markets. The main advantage to merger objection claims is that they can be brought before a transaction closes, potentially saving shareholders from the consummation of a damaging deal. The supplemental disclosures issued in response to many merger objection claims could remedy prior misstatements or omissions and might force managers to do more comprehensive diligence or find better deals. The key advantage of a merger objection lawsuit is its immediacy; unlike most lawsuits, which can only be brought after the fact, merger challenges can directly affect the challenged transaction.¹⁶¹

But based on my early sample of SPAC-related litigation, it is not at all clear that pre-closing merger objections are having this effect. They are so numerous and inexpensive that shareholders could easily be forgiven for not taking them seriously as a signal of real wrongdoing by the management. The disclosures they provide do not appear to induce shareholders to redeem. They do not appear to be related to the returns on the final deal. And the monetary penalties they exact are often too small even to be disclosed and likely would not deter unscrupulous SPAC managers from continuing to lie. All this aligns with the conclusions that have been swirling among scholars and judges in recent years; that “these suits are not being filed with the expectation of obtaining a meaningful recovery for the plaintiff class but rather in order to obtain a quick disclosure and mootness fee.”¹⁶²

This is a problem bigger than SPACs. In general, the time frames in which an M&A transaction must close usually discourage defendants from attempting to defeat pre-merger litigation on the merits, even when that litigation is abusive. And, even if settlement costs are minimal in comparison to the size of the M&A transaction, transaction costs associated with litigation end up being visited on shareholders, for no or little appreciable benefit.¹⁶³

Correcting the broader environment that has allowed pre-closing merger litigation to become so dysfunctional is beyond the scope of this Article.¹⁶⁴ It is worth observing, however, that even if pre-closing merger objections have different significance in the SPAC context than in standard mergers, and even if SPACs are a phenomenon of the moment, pre-closing merger challenges are worth saving, if not for SPACs, then for future transactions and innovations. The first best solution for SPAC-related litigation, and indeed, for many other transactions, would be to save them.

CONCLUSION

The litigation produced by the recent SPAC boom to date is intuitively odd: the likelihood of being sued is greater for SPACs whose shareholders elect to retain their shares, which suggests that they have greater confidence in the success of the merger. The likelihood that a de-SPAC transaction will generate a lawsuit does not, however, have to be related to the size of the deal, the experience of its managers, or virtually any other proxy for quality. This could mean that these lawsuits are, in fact, targeting fraudulent transactions, and the low redemption rates of these transactions reflect the fact that the shareholders have been lied to. Alternatively, it could mean that these lawsuits target low-redemption (and presumably higher quality) deals for some other reason, which may be opportunistic and unrelated to merit. Though these competing explanations are difficult to disentangle for the post-closing claims in my sample, I argue that the pre-closing merger cases in my sample do not appear to be meritorious, irrespective of whether they target fraudulent or non-fraudulent transactions. They do not appear to be an adequate substitute for section 11 liability, and if SPACs are in need of reform, private litigation may not be the optimal solution.

96 S. Cal. L. Rev. 553

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Emily Strauss*

* J.D. Duke Law Lecturing Fellow. For helpful comments, I am grateful to David Berger, John Coates, Patrick Corrigan, Elisabeth de Fontenay, Deborah DeMott, Jessica Erickson, Jill Fisch, Gina-Gail Fletcher, Zohar Goshen, Joe Grundfest, Sharon Hannes, Kobi Kastiel, Michael Klausner, Minor Myers, Michael Ohlrogge, Jim Park, Alex Platt, Adam Pritchard, Barak Richman, Tony Rickey, Amanda Rose, Michael Simkovic, Steven Davidoff Solomon, Andrew Tuch, Andrew Verstein, and participants in the Conference for Empirical Legal Studies, American Law & Economic Association Annual Meeting, Berkeley Law, Accounting & Business Workshop, BYU Deals Conference, and National Conference of Business Law Scholars. Errors are my own.

Co-Creating Equality

July 2023October 2023Sarah Polcz*

When a creative work has many co-creators, not all of whom contributed equally, how should they split ownership? In the absence of a contract, copyright law has long adopted an all-or-nothing answer to this question: if you are deemed to be a “co-author” you get an equal split; otherwise, you get nothing. Because the privileges of co-authorship are so great, courts have erected an onerous barrier to qualifying as a “co-author”: you must have had “control” over the whole collaborative work. This barrier has been criticized both for being arbitrary and for unfairly resulting in lesser contributors going unrecognized and uncompensated. But removing this barrier—in the context of the longstanding rule granting co-authors an automatic equal split—risks unfairly diluting majority contributors. So, in deciding whether to remove the barrier, we have to balance the perceived unfairness of minority contributors going uncompensated against the perceived unfairness of majority contributors being diluted. In this Article I will show that this question of perceived fairness can be answered empirically.

To determine creators’ revealed preferences for how to treat lesser contributing collaborators, I assemble two datasets. Both datasets are in the core copyright domain where the default co-authorship rules are most relevant: co-songwriting. First, I construct a dataset of the songwriting contribution levels, writing credits, and copyright registrations of every band that has a certified Gold Record and writes its own songs. This is over one thousand music groups. Second, by cross-correlating data released by the principal performance rights organizations in response to recent antitrust probes, I estimate royalty splits between the co-writers of over 1.2 million songs. The studies in this Article are the largest and most comprehensive investigation into joint authorship to date that accounts for parties’ contributions.

My primary finding is that the typical behavior of creators is to credit everyone involved in writing as a co-author, even the lesser contributors. A secondary finding is that co-authors who were lesser contributors typically share equally in songwriting royalties. Main contributors thus choose to share much more with lesser contributors than they would be compelled to under current law in the absence of a contract. This revealed preference suggests that we can adopt a more inclusive legal criterion for co-authorship—and in particular remove the arbitrary and exclusionary barrier that to be a co-author one must have control over the entire work—and that we can do so without violating creators’ own sense of fairness. Beyond copyright law and the music industry, these findings have implications for the design of incentives in intellectual property law and creative collaboration more broadly.

INTRODUCTION

Over the last few decades, people have been collaborating to produce creative works more than ever before, from songs to software. But in the absence of an explicit contract, the law of co-authorship now recognizes as “co-authors” only those contributors who have control over the whole collaborative work.¹ This control doctrine² has been broadly criticized: the doctrine seems arbitrary; it may leave lesser contributors entirely uncompensated; and it may obscure the identities of the lesser co-creators.

Under current law, the question of who counts as a co-author has a lot riding on it. This is because there is a longstanding rule granting co-authors an automatic equal split of royalties.³ Unless they have a contract that says otherwise, the default “equal split” rule is that joint authors share license proceeds equally.⁴

Thus under current law, outcomes tend to be binary. Either you have control over the entire work, in which case you count as a co-author and by default get an equal split; or you do not, in which case no matter how much you contributed to the final product you are not a co-author and by default receive nothing.

There are three paths forward. One is to maintain the status quo, leaving the control doctrine in place, at the risk of unfairly leaving minor contributors entirely uncompensated⁵ (among other problems). A second choice is to remove the control doctrine for co-authorship, while also removing the (more long-standing) “equal split” rule, and make the royalty share proportional to the level of contribution. A third option is to remove the control doctrine but leave the equal split rule in place, at the risk of unfairly diluting the shares of the main authors.

If the wrong choice is made, we risk disincentivizing creative collaboration, either by giving rise to credit allocations that creators view as unfair and demotivating, or at any rate by imposing the transaction costs of having to contract out of them.⁶ The important question is then what is fair as judged by the creators⁷ to whom the default rules apply, not as judged by the general public or by legal scholars. Joint authorship default rules are uniquely relevant for co-songwriting; they are preempted by work for hire or other practices in most other contexts. For this reason, in this Article I will attempt to answer the following empirical question: as revealed by their actions, what do the majority of co-songwriters view as a sensible way to grant co-authorship and split songwriting license proceeds? In particular, how do they treat lesser contributing collaborators?

To pursue these questions, I assemble two datasets. First, I construct a dataset of the songwriting contribution levels, writing credits, and copyright registrations of over one thousand music groups—every band with a certified Gold Record that primarily releases its own songs, since certifications began to the present (1959–2021). I explore how co-author-crediting decisions are associated with features of the creative context including members’ levels of songwriting contributions, number of collaborators, geography, genre, and era. Second, I extend beyond music groups and explore royalty splits between co-writers for over 1.2 million songs by leveraging the data sharing undertaken by the American Society of Composers, Authors and Publishers (“ASCAP”)⁸ in response to its ongoing antitrust action. I find that lesser contributors are most often credited as co-authors, and as co-authors they most often share equally in songwriting royalties. The results support the position that calls for rethinking the control doctrine while retaining joint authorship’s equal split default rule.

Part I reviews the history of the equal split rule, the phases of the development of the control doctrine in joint authorship law, and the competing proposals for its revision. Part II makes the case that empirical data can guide our way forward. Parts III and IV present the methodologies and results of two studies. Part V discusses the legal implications of the results.

I. CONTEXT

A co-author who licenses a joint work—for example, allowing a song to be used in a television show—must give their co-authors a share of that money.⁹ If the co-authors have a contract between them, they receive the agreed amount. Otherwise, each co-author is entitled to an equal share,¹⁰ even if the parties have indisputably made unequal contributions to the joint work.¹¹

A. The Equal Split and the “Intent to Merge”

This was not always the case.¹² For the first century after copyright laws appeared in the United States, there was no default rule dictating how to split co-authorship profits, or concerning co-authorship generally.¹³ Copyright registration was relatively unimportant for the first century of the United States under the Constitution, for reasons both philosophical¹⁴ and economic.¹⁵ When co-authorship did arise, co-authors settled among themselves whether or not they would share licensing income. The first judicial decision on accounting between co-authors was not until 1874. The court in Carter v. Bailey held that a co-author could license their joint work without their co-authors’ consent¹⁶ and without having to redistribute that licensing income among any co-authors of the work not party to the licensing transaction.¹⁷ The rationale behind this was that the left-out co-authors were equally able to do the same if they put forth the effort, because a license to one person does not use up intangible property.¹⁸ Each co-author owned an undivided interest in the entire work, and so had the full right to license that property so long as they did not interfere with their co-authors’ rights to do the same.¹⁹ This mirrored the situation with patent co-owners.²⁰

In the decades that immediately followed Carter, the copyright landscape in the U.S. was transformed by a boom of popular culture and means for its dissemination. By the early twentieth century, entertainment industries were expanding, changing, or being freshly created.²¹ Co-authorship grew from the minority case to a common way of producing creative works in important domains. Moreover, dissemination of works was so improved that the circumstances that justified the holding in Carter—that there was no duty to account because one co-author’s licensing of the joint work would not impair the excluded authors’ ability to license it—quite clearly no longer applied.²² Technologies like radio and film could reach the entire market for a joint work,²³ leaving nothing for excluded authors and thereby effectively destroying the value of the work’s copyright for them.²⁴

This rule first shifted in 1915 with Maurel v. Smith.²⁵ In Maurel, three parties agreed to jointly author an operatic work. The plaintiff wrote the plot (the “scenario”), while the first defendant H. Smith translated the plot into script and claimed to have made substantial modifications. The second defendant added lyrics for musical numbers without reference to the plot.²⁶ The defendants then registered the copyright for the work without including the plaintiff, blocking her from exploiting her property, as under the 1909 Copyright Act an author’s rights followed from registration.²⁷ The court held that the license proceeds were held in a constructive trust for the excluded co-author,²⁸ in effect creating a duty to account, because there had been no other way for the excluded co-author to obtain license revenue. Cases following Maurel, however, interpreted it as establishing a general duty for co-authors to account to each other for profits.²⁹ Moreover, they were to share equally in those proceeds, at least in the absence of a contract stating otherwise. This position has been treated as settled law since it was established more than one hundred years ago.³⁰ Courts have not given consideration to uneven shares.³¹

Importantly, Maurel established that contributions to the joint work do not need to be balanced; co-authorship would be found so long as the collaborators share a “common design.”³² One defendant had argued that the plaintiff should not be considered his co-author because substantial changes had been made to the plot she contributed,³³ in essence asserting that his contributions to the totality were significantly greater than the plaintiff’s. On this point, Judge Learned Hand adopted the view put forth in the English case Levy v. Rutley,³⁴ that as long as the parties had agreed upon a common scheme for the joint work there “can be no difficulty in saying that they are joint authors of the work, though one may do a larger share of it than the other.”³⁵ Having established that the plaintiff was indeed a co-author with the defendants, Judge Hand found that the copyright was the resulting res of their three contributions, “and by every equitable rule the defendants hold any legal rights they have upon trust in the same proportion.”³⁶ In so declaring, Judge Hand applied the common law of tenancy in common to the parties’ relationship, one of equal ownership by default.³⁷

But tenants in common can refute their equal undivided shares by showing evidence of unequal financial contributions to the purchase of the common property.³⁸ In the case of a joint work, the analog would be to adjust the co-authors’ shares to reflect some proportion of their inputs, whether the relative quantity of their creative contribution or value created. Judge Hand did not address this feature of tenancy in common explicitly, but effectively shut out its application in the case when he took up the claims of the second defendant. The second defendant, R. Smith (brother of defendant H. Smith), argued that he did not need to share with the plaintiff profits resulting from a separate publication of the song lyrics he had written for the opera. Judge Hand took the view that the lyricist could not claim the opera played no role in the later sales success of his lyrics. In a consequential declaration, Judge Hand found determining the contribution of the whole to the success of the part in this manner was not possible.³⁹ For this reason, the lyricist would be required to split any profits from the separate sale of lyrics equally with his co-authors in the whole opera.

Judge Hand (and decisions accepting the logic of Maurel) treated that reasoning as sufficient to implicate the converse scenario as well: that the particular contribution of any co-author to the success of the whole could not be measured,⁴⁰ leading to the generalized pronouncement that when “several collaborators knowingly engage in the production of a piece which is to be presented originally as a whole only, they adopt that common design . . . and unless they undertake expressly to apportion their contributions, they must share alike.”⁴¹ The underlying causal premises of Judge Hand’s reasoning is that when all authors’ contributions are necessary for a work’s value,⁴² the degree to which each comparatively adds to that value cannot be assessed. Each contribution has its effect at the level of whether or not it is made (that is, categorical) because the contributions are mutually contingent; in this sense all contributions are equally responsible for the work’s total value. This suggests an equal split because it cannot be said that one person’s contribution is “more” of a cause than another’s.

In Maurel, there was disagreement about the parties’ proportional contributions, as the defendants sought to justify excluding the plaintiff from the copyright registration by minimizing her contribution. But the decision suggests that Judge Hand considered the parties’ true contributions to be of comparable magnitude.⁴³ It may be for this reason that, after rejecting the possibility of determining the responsibility of each party separately for the opera’s success, Judge Hand did not find it helpful to entertain the alternative of dividing royalty rights according to some measure of each author’s direct inputs. But whatever the reason, this position has been enforced even when parties did not dispute that the co-authors’ contributions to the joint work were not equal. In Sweet Music, Inc. v. Melrose Music Corp.,⁴⁴ the assignee of a co-author requested a three-quarter share in a song’s renewal copyright, on the basis that he had written “half the words and all the music.”⁴⁵ In the absence of “evidence indicating that the ownership was intended as other than an undivided one-half interest for each of the co-authors,”⁴⁶ the court applied the default rule.

When the Copyright Act of 1976 was passed, it left unchanged court-made law on accounting responsibilities of joint authors to one another.⁴⁷ Courts had not yet addressed the question of how comparatively lesser a collaborator’s contribution could be while still being fairly entitled to the equal benefits of authorship. No court had given serious reconsideration to Maurel’s assertion that co-authors are entitled to equal shares of proceeds in the absence of a contract. The Copyright Act codified the criteria for joint authorship in Maurel,⁴⁸ requiring that collaborators have an intent to merge their contributions into a unitary whole.⁴⁹

B. Gatekeeping Against Lesser Contributors: From “Intent to Merge” to “Intent to be Co-Authors”

For the first decade after the Copyright Act of 1976 was passed, most courts followed a literal reading of the statute—and, per legislative history, the common law precedent—to decide joint authorship claims. The longstanding rule was that co-authors share equally in the benefits of co-authorship regardless of their relative contributions. Co-authorship rewards were potentially high, but the intent to merge standard for minting co-authors was low. Lesser contributors, with whom a work’s more significant authors may not have intended to collaborate,⁵⁰ or whose contributions were quantitatively small in comparison to their co-author’s,⁵¹ were being granted co-authorship at the district court level, seeding frustration in the Second Circuit.

Beginning in the 1990s, courts heard a series of cases about creative works arising from joint efforts in which the disparities between the collaborators’ contributions were stark. Under the intent to merge statutory standard, they would nevertheless have been equal co-authors. Courts’ gut reaction to these cases was that equal co-authorship would be unfair.⁵² Primary creators, it was perceived, would not want to share equal proceeds with collaborators who had made lesser contributions to the work;⁵³ if forced by the law to do so, they would be disincentivized to collaborate out of fear of sharing authorship.⁵⁴

But equal co-authorship was well entrenched in the law. Modifying collaborators’ co-authorship shares to reflect their relative contributions was not an option under consideration. Instead, courts granted a prerogative to greater contributors to share, or not share, co-authorship with a work’s lesser contributors. This was given effect by adding a mutual intent to be co-authors requirement to the statutory intent to merge and necessary independently copyrightable contributions.⁵⁵ These cases proposed that evidence of the parties’ subjective intentions to be co-authors could be inferred from, for instance, how the work was billed or credited.

C. Introduction of the Control Doctrine

While the intent to be co-authors test raised the bar for co-authorship, it did not foreclose it.⁵⁶ A new requirement for co-authorship, a need to have control over the whole work, was invented. In the Seventh Circuit,⁵⁷ it was framed as additional and necessary evidence of the mutual intent test for joint authorship. In the Ninth Circuit, it was framed as a new test of authorship, without which, as before, there could be no question of joint authorship—regardless of the extent of one’s copyrightable contribution.⁵⁸ In Aalmuhammed v. Lee,⁵⁹ appellant Jefri Aalmuhammed served (without a contract) as an Islamic consultant on the Warner Brothers film Malcolm X. In addition to these services, he made comparatively minor scriptwriting and directorial contributions that were included in the completed film. These contributions would have been independently copyrightable.⁶⁰ All creative contributors intended that their contributions were to be merged into the whole,⁶¹ satisfying the statutory intent test. The panel voiced concern that dominant authors would be deterred from beneficial collaboration if they had to share the benefits of authorship with a co-author whose contributions were substantially less,⁶² strongly implying that on policy grounds they sought a construction of authorship that would exclude Aalmuhammed. As evidence against the existence of a mutual intent to be co-authors, the Ninth Circuit adopted the control concept introduced by the Seventh Circuit.⁶³ Focusing on Spike Lee’s control over including Aalmuhammed’s contributions in the film,⁶⁴ control was elevated as the most important factor needed to find there had been an intent to be co-authors.

Since Aalmuhammed, in the absence of a contract, lesser contributors’ joint authorship claims have turned on evidence establishing that they exercised control. As the joint authorship test for the Ninth Circuit,⁶⁵

First, we determine whether the “putative co-authors ma[de] objective manifestations of a shared intent to be co-authors.” A contract evidencing intent to be or not to be coauthors is dispositive. Second, we determine whether the alleged author superintended the work by exercising control. Control will often be the most important factor. Third, we analyze whether “the audience appeal of the work” can be attributed to both authors, and whether “the share of each in its success cannot be appraised.”

Id. (citations omitted). In the absence of a contract, “control” or lack thereof is generally sufficient for determining co-authorship intent. To date, no case has turned on the “audience appeal” factor. For a comprehensive discussion of audience appeal’s role in joint authorship cases, see Timothy J. McFarlin, Shouting the People: Authorship and Audience in Copyright, 93 Tul. L. Rev. 443, 469–79 (2019). it has been applied in songwriting joint authorship cases,⁶⁶ more often than not,⁶⁷ although the former was discouraged by the Aalmuhammed court in dicta.⁶⁸ In practice, control has meant control over the whole work,⁶⁹ though a minority position has found control over “separate and indispensable elements of the completed product” to meet the control requirement.⁷⁰ More recently, there are also signs that the Aalmuhammed-like concept of control is resonating with other circuits and trumping creative contribution considerations.⁷¹

In Corwin v. Quinonez, 858 F. Supp. 2d 903, 912 (N.D. Ohio 2012), the plaintiff band member’s contributions to sound recordings were denied joint authorship status due to lack of mutual intent with the defendant band leader, principally under the control standard: the defendant did not “cede[] control of the recordings to Plaintiff” and “made the final decision of what [was] used for the song.” As in Aalmuhammed, the language used by the court here presupposes a single author despite the undeniably collaborative nature of the work. Corwin cites principally to Erickson v. Trinity Theatre, Inc., 13 F.3d 1061 (7th Cir. 1994), but also to Janky v. Lake Cnty. Convention & Visitors Bureau, 576 F.3d 356 (7th Cir. 2009). In Janky, the Seventh Circuit found joint authorship in a case in which the putative co-songwriter likely did not make an independently copyrightable contribution, see Janky, 576 F.3d at 364 (Ripple, J., dissenting), partly on the theory that the co-author “wielded considerable control over what the song finally looked like,” id. at 362. (Janky followed the earlier Gaiman v. McFarlane, 360 F.3d 644 (7th Cir. 2004) in repudiating, at least in certain circumstances, the Seventh Circuit’s longstanding adherence to the Goldstein standard.) Janky is, for now, the exception that tests the rule that the control standard is strictly a one-way ratchet for denying joint authorship claims. Its legacy across the circuits may be to serve as a means of granting authorship within the control framework to a party who has made no copyrightable contribution, and possibly no creative contribution at all. But the general consequence of the expanding influence of the control standard is that lesser contributors are blocked from the equal sharing of authorship, and lacking authorship, have no entitlements in the absence of a contract.⁷² In the two circuits most consequential for the copyright industries,⁷³ there is now a trend toward finding works to be single-authored.

The intent to be co-authors test, which replaced the intent to merge test, and the control doctrine, itself designed to further strengthen the intent to be co-authors test, are widely regarded by scholars as suboptimal. Courts aspired to recognize the interests of both lesser and greater contributors, but existing law was understood to force an all-or-nothing choice between the two groups.⁷⁴ The consequences of exclusion from co-authorship for lesser contributors include leaving them uncompensated for their work. Also of concern is the disordering effect of these standards on author identification, a central goal of copyright law. Goldstein criticizes the control standard as being “both overinclusive and under-inclusive.”⁷⁵ It allows contributors primarily of non-copyrightable expression, such as film producers, to be recognized as authors. At the same time, it complicates the identification of the authors of most other multi-authored works.

D. Scholarly Positions

Scholars generally agree that lesser contributors who make copyrightable contributions should be counted as co-authors.⁷⁶ Beyond that, scholars are divided into two camps with respect to how the law ought to treat them vis-à-vis their majority contributing co-authors.

One camp would retain the equal split default while granting equal shares to lesser co-authors.⁷⁷ Goldstein would apply the plain language of the statute and allow equal ownership to all contributors of independently copyrightable material if they intended to merge their contributions in a unitary whole. If Warner Brothers does not want to share equal ownership in Malcolm X with Aalmuhammed, it should not fail to negotiate with him for the value of his services—and be more careful in the future.⁷⁸ Goldstein levels similar criticisms of the extra-statutory introduction of the intent to be co-authors and control requirements to the Copyright Act’s intent language.⁷⁹ While the statutory intent (intent to merge) approach “will sometimes give an economic interest to a contributor . . . who probably did not intend to receive it,” the Copyright Act should not be distorted to protect the economic interests of dominant contributors.⁸⁰ A better outcome is for dominant contributors to bear the burden of adjusting shares via contract to avoid an undesired equal split.⁸¹

The other camp of scholars focuses on courts’ unease with non-equal contributors receiving equal authorship rights as the source of courts’ statute-distorting jurisprudence. This camp would endorse lesser co-authors receiving a lesser split.⁸² The shared assumption of this camp—that if lesser contributors reap financial rewards greater than their contributions seem to merit, majority contributors will be disincentivized and creative production will suffer as a result—is rarely questioned.⁸³ The inefficiency of equal pay is widely accepted. There is an assumption that fairness has an important role to play in economic productivity. But there is more to the psychology of linking compensation to contributions than simply motivating cool-headed, rational workers. The sentiment held by many is that a contribution-based default should be established because fairness requires a correspondence⁸⁴ between inputs and outputs.⁸⁵

There are two main approaches, which hold in common that it is possible to make adjustments to existing joint authorship law.⁸⁶ The proposed implementation which has attracted the most scholarly support is a rebuttable presumption of equality.⁸⁷ This may be because it receives textual support in the legislative history⁸⁸ and is drawn from the analogy of joint authorship with real property tenancy in common. In such cases, while undivided equal shares are the default, co-owners may rebut that presumption by showing that unequal contributions had been made to the purchase price. This would allow unequal shares to be awarded if there is evidence the co-authors’ contributions were unequal. Aalmuhammed’s contributions to Malcolm X could be determined by experts to have been responsible for some small fraction of the film’s success, and he could be compensated accordingly.⁸⁹ A smaller group of scholars, perhaps relying on the silence of the Copyright Act as to shares in the copyrighted work, argue that proportionality should be the default rule in all joint authorship cases. For these scholars, fairness, as they believe it to be perceived, is a paramount concern. If songwriters prefer to split equally even when a co-author makes a lesser contribution, it would be a challenge to this notion of fairness.

II. WHAT SHOULD BE DONE?

How should we choose whether to reject the intent to be co-authors and control doctrines and instead include lesser contributors as co-authors? And if we do decide to include lesser contributors as co-authors, what would be the most efficient rule for splitting revenue between joint authors: retaining the equal split, or revising it to be contributions-based? With respect to the first issue to be decided, it is possible, if unlikely, that most creators would prefer lesser creators to be excluded from co-authorship and simply paid for their services. Often in collaboration situations where the parties do not have a contract or the contract is silent about co-authorship shares, which is when the default joint authorship rules apply, a main creator will not have funds to pay lesser contributors in advance for services, and the unevenness of contributions may not be clear until the joint work is complete.

With respect to the second question, some would argue that well-established common law default rules are presumptively efficient⁹⁰ because they have been accepted by parties across contexts over time.⁹¹ The control doctrine did not arise to thwart the equal split rule for nearly a century.⁹² On the other hand, the equal split rule’s detractors regard as self-evident that it is unfair and unpopular. The suboptimality of the equal split default feels like a frictionless assumption. Proportional compensation is the norm in wage labor contexts, which are related but distinct.⁹³

The traditional view is that an efficient default reflects the preferences of “most contracting parties—or perhaps most contracting parties in a given industry.”⁹⁴ The universe of possible contracting parties in this case is those creative collaborators who would potentially contract with one another over the division of license proceeds. This universe consists principally of
co-songwriters. The core copyright industries include literature, music, theater, film, the media, photography, software, visual arts, and advertising.⁹⁵ Collaborative creative production has been on the rise across all of the core copyright industries, but it nevertheless accounts for a very small proportion of output (<0.5%) in most of the visual arts⁹⁶ (for example, fine art,⁹⁷ sculpture,⁹⁸ and photography⁹⁹). The rate is higher, albeit still very low, in literature and theater. In music, however, the co-authorship rate of songs¹⁰⁰ is 37%.¹⁰¹ Copyright works are much more likely to be produced through collaboration in the film, software,¹⁰² and music¹⁰³ industries, and in academia.¹⁰⁴ However, in all but the music industry, the joint authorship default rules are for the most part inapplicable.

There are two reasons for this. First of all, only authors can be joint authors. This means that whenever collaborators’ works are officially “authored” by their employer,¹⁰⁵

In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.

17 U.S.C § 201(b) (2016). the default rules are not relevant.¹⁰⁶

a work prepared by an employee within the scope of his or her employment; or . . . a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

17 U.S.C. § 101 (2016). Work for hire arrangements are not generally practiced in the music industry,¹⁰⁷ but they are the norm in film¹⁰⁸ and software. (The stakes for Warner Brothers in Aalmuhammed illustrate why.) Second, in academia, journal articles, which comprise the bulk of academic publishing,¹⁰⁹ as a matter of course reassign royalty streams from creators to publishers.¹¹⁰ The open access movement opposes assigning copyrights to paywalling publishers, but even under an open access model the publishing royalties would still be inconsequential for authors, albeit for a different reason.¹¹¹ These practices—work for hire and publisher assignments—cover two paths to corporate ownership of copyrightable work and most contexts of creation in film, the media, software, and advertising.¹¹²

A. The Unique Relevance of Co-Songwriting

Songwriting is not included in the categories of creative work covered by work for hire.¹¹³ Typically, musicians who are signed by record labels will be paid an advance against future royalties.¹¹⁴ However, in those cases, this is not an assignment of ownership of their songwriting copyrights to the labels.¹¹⁵ So co-songwriters, as a matter of course, will be either contracting out of, or relying on the default rules for, joint authorship to specify the allocation of songwriting royalties.

Songwriting is one of the copyright domains in which the parties are the least likely to be thinking in legalities at the time of creation, or even in terms of industry norms: songwriters have only limited knowledge of other songwriters’ split practices. Unlike scholarship, commercial filmmaking, or software development, songwriting can be (and often is) undertaken by a handful of teenagers in a garage band for whom default rules in the absence of contract are particularly relevant.¹¹⁶ Moreover, 68% of music groups are primarily composed of friends or family members.¹¹⁷ Other domains where joint authorship rules tend to apply do not approach the volume of creation—and therefore individual works which are potentially subject to contracting about royalty splits—of co-songwriting. There are over 750,000 people who have co-written a song in the ASCAP repertory alone.¹¹⁸

Finally, joint authorship rules are financially consequential for co-songwriters.¹¹⁹ The economic importance of songwriting royalties¹²⁰ is not an argument in favor of focusing on co-songwriters to set the default joint authorship rules. But it is an additional reason why we should be interested in efficiently setting the joint authorship rules more generally. In the history of popular music, the importance of songwriting royalties to musicians has waxed and waned.¹²¹ Songwriting royalties became meaningful for musicians after the 1960s transition to solo artists and bands who wrote their own songs¹²² and who, by the 1970s, had the bargaining power to control their own publishing revenues.¹²³ Beginning in the band era of the 1960s, songwriting royalties for the most successful songs were worth millions.¹²⁴ The revenue for artists derived from songwriting has declined again with the advent of streaming.¹²⁵ Nevertheless, songwriting royalties are a significant portion of total income for many successful musicians. This became particularly clear during the COVID pandemic which eliminated touring income for over a year for many artists. A survey prior to the COVID pandemic of working musicians found that, in the most recent decade, indie rock bands have earned about 21% of their gross income from songwriting royalties and advances on those royalties.¹²⁶ Across other genres this figure was approximately 8% of income,¹²⁷ rising to 39% for people who identified as composers, whether performing or not.¹²⁸ And songwriting royalties often provide a measure of financial security for musicians. Unlike money from tours, for instance, the checks keep coming in once a musician’s most active career years are over.¹²⁹ Songwriters can also receive substantial payouts for licensing their compositions for film, TV, commercials, or video games.¹³⁰ Fees for licensing a song for television play can be as low as $1,000¹³¹ per year to more than $100,000¹³² per year for well-known hits.

If you combine the considerations of (1) collaborations not covered by employment, work for hire, and where there is no standard practice of assignment of copyright, with (2) the volume of collaborations and works produced, there is a strong case to be made that default joint authorship rules are primarily relevant for co-songwriting. It may be that by volume, default joint authorship rules that are efficient for co-songwriting are efficient for most co-authorship cases to which those rules apply in general.

If fairness in labor contexts means applying the proportionality principle, we would expect musicians to find the equal split default rule unfair. But there is no evidence suggesting that songwriters tend to take issue with Judge Hand’s view that they must “share alike.” There has been no movement against it. Proposed amendments to the Copyright Act have never sought to revise the equal split rule, nor have music industry representatives testifying before Congress problematized it. This suggests that the equal split rule has persisted not merely because it is precedent, but because either very little is at stake, or because it leads to what collaborators consider a fair result.

B. Identifying Efficient Joint Authorship Rules Is an Empirical Task

If one agrees with the prevailing view that an efficient default reflects the preferences of most contracting parties,¹³³ then determining the most appropriate default relies on identifying the preferences of those parties. This can be achieved by looking at what contracting terms those individuals actually agree to, an empirical question.¹³⁴ Moreover, in the case of co-songwriting, this is answerable.¹³⁵ Unlike many questions governed by default terms in contract law which may have a remote chance of becoming operational, if a song earns any songwriting royalties that the co-songwriters want to collect, they will have to face the question of with whom and how to divide them up.

Co-songwriters create a record of who shares co-authorship of their joint work when they register a song with a performance rights organization (“PRO”).¹³⁶ The individuals completing a PRO’s registration form must specify how royalties are to be split between those credited as writers: there is no default split as far as the PROs are concerned. PROs then channel the royalties they collect to a song’s listed co-writers in accordance with that information. The major PRO repertories are public and include nearly the full set of co-authorship crediting decisions made by co-songwriters in the United States.

I am interested in the co-authorship crediting decisions and royalty split choices of collaborations where contributions are uneven. Ideally, I could identify all songs resulting from uneven contributions and see if all contributors, including lesser contributors, are typically credited as co-authors. That information is not attainable. However, in this Article I construct a unique database including songwriting contribution levels for over 1,000 music groups with certified Gold Records—every band with a Gold Record that primarily writes its own songs, from the first certifications to the time of writing (1959–2021) (the “Gold Record bands”). The songwriting process of each band in the Gold Record database is coded for the contribution levels of its band members based on publicly available information.

Because the membership of these most popular bands is well-known, we can determine by looking at their PRO-registered songwriting credits whether lesser contributors are most often counted as co-authors. PRO credits were obtained for bands in the Gold Record database from the song repertories of the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”), which together represent 90% of the U.S. market in public performance rights (Study 1).

If the answer to whether lesser contributors are counted as co-authors is “no,” then the consequence of the control doctrine that lesser contributors are excluded from co-authorship status will have been shown to align with creator preferences in this case. This would weaken at least one key objection to the control doctrine (see Figure 1).

If the answer is “yes,” for which I make the case, the next question is whether, as co-authors, lesser contributors typically share equally in the benefits of co-authorship.¹³⁷ For this Article, I conducted two studies to investigate this question (Study 2a and Study 2b). In Study 2a, I estimated the royalty splits of a third of the uneven Gold Record bands which include all members as co-authors. First, I compiled statements by the bands themselves or those close to them (managers, for example) disclosing the bands’ royalty split practices. The second method used the repertories of ASCAP and BMI to infer the splits of Gold Record bands. In Study 2b, I used this same methodology to infer the splits of 1.2 million co-written songs.

If the results of Study 2 support that “yes,” typically lesser contributing co-authors do receive an equal split of royalties, then the existing equal split rule is presumptively the most efficient default.

If the analysis in Study 2 suggests that “no,” lesser contributing co-authors typically do not receive an equal split of royalties, then the proposals of the second camp of scholars for revisiting the equal split default ought to be debated further.

Figure 1. What Is Creators’ Preferred Treatment of Lesser Contributors?

C. Relevance of Empirical Data

Can the transaction cost implications of these studies help guide us between an equal split and proportional split rule? Even if the results of Study 2 suggest that we should retain the equal split default, some might question if there is any added value to empirical preference data over and above existing transaction cost arguments in favor of the equal split. Even if preference data were to show that creators prefer a proportional split, the argument might go: an equal split default would still be most efficient because the transaction costs of a proportional split default are too high. I argue that it seems unlikely that the transaction costs of implementing a proportional default split are as high as some contend. The thought is that a contribution-based rule would entail a considerable fact-finding burden and require jurists to assign percentages based on their subjective appraisals of each co-author’s contributions.¹³⁸ Unlike in copyright infringement cases, where courts already make such appraisals,¹³⁹ in joint authorship disputes the value of a work is not necessarily known.¹⁴⁰ This position rests on evidentiary assumptions that are not compelling. Assigning joint authors uneven shares in a song involves approximate and imprecise appraisals.

Yet those aspects of making proportional attributions would not be unique. Courts are accustomed to carving up responsibility in contexts of nebulous causality to arrive at liability determinations in common law torts.¹⁴¹ English courts have awarded proportional shares in cases where authorship was found in the absence of contract and contributions were unequal,¹⁴² and ownership is proportional by default in Germany.¹⁴³ If there are reasons to think American jurists would face unique obstacles to determining proportional ownership shares, they have yet to be raised. In general, while degrees of interdependence vary across collaborative contexts, almost as a rule people succeed in translating comparative contributions into pay differences within a tolerated margin of error. If most collaborators must contract out of the default regime because an equal split does not match their royalty distribution preferences, then on the whole a proportional split default rule could be more efficient. The pre-existing arguments against the proportional split and in favor of the equal split are weak.¹⁴⁴ These arguments do not fare well if you believe the central preference contention of the advocates of a contributions-based split. The aggregate transaction costs of contracting out of the default rule are the most significant potential drag on efficiency. For this reason, it is important to know both if creators—in this article particularly songwriters—think lesser contributors deserve to be co-authors, and as co-authors, how much they think they deserve.

III. WHO IS A CO-AUTHOR?

A. Study 1: Are Lesser Contributors Considered Co-authors?

1. Methodology

When songwriters collaborate to write a song, but one of them contributes more than the other, will they all still be credited as co-authors? To answer this question, I focused on a large group of songwriting collaborators: music groups that write their own songs and have one or more Gold Records. As popular music groups, they are often on record about which of their members contribute to writing their songs and how much of a contribution¹⁴⁵ those members make to writing their songs.¹⁴⁶ The 1,003 bands in this study include Gold Record awardees from across the full sixty years (1959–2021) during which Gold Records have been awarded¹⁴⁷ by the Recording Industry Association of America (“RIAA”).¹⁴⁸ The RIAA certifies albums¹⁴⁹ and singles¹⁵⁰ based on sales.

The Gold Record bands have previously discussed their songwriting processes in numerous interviews.¹⁵¹ Such interviews were the principal basis for identifying bands in which all the members contribute to songwriting but do not contribute evenly (uneven contributions bands).¹⁵² These bands occupied a middle ground between, on the one hand, groups in which all members made more or less even contributions to songwriting (even contributions bands), and, on the other hand, bands in which some members did not contribute to songwriting at all (some members do not contribute bands).¹⁵³ The research and coding processes were highly labor intensive, taking several hundred hours over which thousands of sources were screened and compiled.¹⁵⁴

In addition, unless all of a band’s members made independently copyrightable contributions to songwriting, the band was classified as one in which some members do not contribute.¹⁵⁵ The copyrightability of songwriting contributions was assumed when quotes labeled band members as songwriters or confirmed members’ involvement in songwriting in general terms.¹⁵⁶ When members’ particular contributions were described,¹⁵⁷ case law (interpreting the Copyright Act) was the primary basis for assessing their copyrightability.¹⁵⁸ Band member contributions which included the elements of a musical work—lyrics,¹⁵⁹ melody,¹⁶⁰

Melody in a musical composition consists of a succession of notes, as well as the long and short durations of individual notes, organized around the composition’s rhythm. Because melody is so salient, and is relatively unconstrained by musical convention, it is typically the principal vessel of originality in musical compositions.

Goldstein, supra note 9, § 2.8, at 2:102.1–2. harmony,¹⁶¹ and rhythm¹⁶²—were assumed to be sufficiently original¹⁶³ and treated as copyrightable.¹⁶⁴ Most bands were classified as some members do not contribute(555/1,003, or 55%), followed by uneven (258/1,003, or 26%); it was least common for all members to contribute evenly to songwriting (190/1,003, or 19%).

Next, I assessed whether uneven bands credited all members as co-authors of their songs. A song’s writers are listed in several places: liner notes, on PRO registrations, and in United States Copyright Office (“USCO”) registrations. I consulted PRO registrations and validated that they correspond to USCO registrations.¹⁶⁵ A band was classified as one in which all members are co-authors (true/false)¹⁶⁶ if, for a majority of its songs, all the members of the band in the year the song was released were credited as writers.¹⁶⁷ For 38% of the 1,003 bands in the study, it was true that all members are co-authors.

Other factors beyond writing contribution may influence whether or not lesser contributors receive co-authorship credit. For this reason, I collected data on a number of factors. I designated the lowest number of members the band had during its active years as a representative band size¹⁶⁸ and identified each band’s genre¹⁶⁹ of music, region of origin,¹⁷⁰ and decade¹⁷¹ of formation (see Table 1). I also evaluated whether co-author inclusion changed over time.¹⁷²

Table 1. Descriptive Statistics for Gold Record Bands 1959–2021
Variable	N = 1003
All members are co-authors	379 (38%)
Songwriting
Even	190 (19%)
Uneven	258 (26%)
Some members do not contribute	555 (55%)
Decade
1960s and earlier	89 (8.9%)
1970s	129 (13%)
1980s	234 (23%)
1990s	288 (29%)
2000s	177 (18%)
2010s and later	86 (8.6%)
Members
2	215 (21%)
3	220 (22%)
4	349 (35%)
5	158 (16%)
6+	61 (6.1%)
Genre
Rock	478 (48%)
Hip Hop, R&B, Gospel, Jazz	190 (19%)
Pop	151 (15%)
Metal	65 (6.5%)
Country	44 (4.4%)
Latin	29 (2.9%)
Punk	21 (2.1%)
Electronic	17 (1.7%)
Reggae	8 (0.8%)

Region
Northeast	170 (17%)
Midwest	84 (8.4%)
West	265 (26%)
South	204 (20%)
Non-USA	280 (28%)

2. Results

From 1959 to 2021, uneven bands typically included all members as co-authors (140/258 or 54%). This tendency strengthened over time, specifically throughout each of the last three decades, even while accounting for genre, region of origin, and representative band size (p < 0.01).¹⁷³ Most uneven bands with fewer than five members include all members as co-authors.¹⁷⁴ Among bands with five or more members, a considerable majority (66%) have some members who do not contribute to songwriting, and there were too few even or uneven contribution bands of that size to investigate co-author inclusion rates and whether copyrightable contributions by all members suffice for co-authorship credit or whether some other factor, perhaps control, is required.¹⁷⁵

To pursue the trend of increasing co-author inclusion over time, I focused on uneven bands formed after 1990 (n=175). A significant majority of these groups credit lesser contributors as co-authors (111/175, or 63%).¹⁷⁶ This preference was less common with larger bands, but otherwise was not associated with other factors.¹⁷⁷

Table 2. Logistic Regression for Co-Author Inclusion: UnevenContributions Bands 1959–2021
Variable	log(OR)	95% CI	p-value
Decade (ref. cat.: 1980s)
1960s and earlier	-0.30	-1.6, 0.92	0.6
1970s	-0.12	-1.3, 1.0	0.8
1990s	1.2	0.35, 2.1	0.007*
2000s	1.2	0.34, 2.1	0.007*
2010s and later	1.5	0.39, 2.6	0.009*
Members (ref. cat.: 4)
2	1.2	0.21, 2.3	0.022*
3	-0.04	-0.81, 0.73	>0.9
5	-0.73	-1.5, 0.05	0.067
6+	-1.4	-3.0, 0.05	0.075
Genre (ref. cat.: Pop)
Rock	0.61	-0.25, 1.5	0.2
Hip Hop, R&B, Gospel, Jazz	-0.80	-1.9, 0.27	0.15
Country	-1.7	-3.6, 0.01	0.060
Metal	-0.09	-1.3, 1.1	0.9
Punk	-0.47	-2.7, 1.7	0.7
Electronic	-1.4	-3.4, 0.57	0.2
Reggae	13	-167, NA	>0.9

Region (ref. cat.: Northeast)
Midwest	-0.51		-1.9, 0.82		0.5
West	-0.07		-0.91, 0.77		0.9
South	0.36		-0.57, 1.3		0.5
Non-USA	0.11		-0.80, 1.0		0.8
Notes: p < 0.05; *p < 0.005.
Table 3. Logistic Regression for Co-author Inclusion: UnevenContributions Bands 1990–2021
Variable		log(OR)		95% CI		p-value
Songwriting (ref. cat.: Some members do not contribute)
Even		2.9		2.4, 3.5		<0.001**
Uneven		1.8		1.4, 2.1		<0.001**
Decade (ref. cat.: 1980s)
1960s and earlier		-0.94		-1.7, -0.20		0.016*
1970s		-0.33		-1.0, 0.27		0.3
1990s		0.50		0.06, 1.0		0.026*
2000s		0.74		0.23, 1.2		0.004**
2010s and later		0.90		0.23, 1.6		0.009*
Members (ref. cat.: 4)
2		0.91		0.43, 1.4		<0.001**
3		0.02		-0.42, 0.45		>0.9
5		-0.61		-1.1, -0.11		0.017*
6+		-1.5		-2.6, -0.56		0.003**
Genre (ref. cat.: Pop)
Rock		0.37		-0.14, 0.89		0.2
Hip Hop, R&B, Gospel, Jazz		-0.79		-1.4, -0.16		0.014*
Country		-1.0		-2.0, -0.09		0.034*
Metal		0.27		-0.52, 1.0		0.5
Latin		-1.5		-3.0, -0.18		0.032*
Punk		0.87		-0.29, 2.0		0.13
Electronic		-0.50		-1.8, 0.90		0.5
Reggae		1.0		-1.6, 4.1		0.5
Region (ref. cat.: Northeast)
Midwest		-0.68		-1.4, 0.04		0.069*
West		0.01		-0.49, 0.51		>0.9
South		0.11		-0.43, 0.65		0.7
Non-USA		0.26		-0.26, 0.78		0.3
Notes: p < 0.05; *p < 0.005.

A significant majority of bands (75%) did not deviate from the practice of crediting or not crediting all members as co-authors which they had established in the year of their first release.¹⁷⁸ Of those 25% of bands that switched credit practices, most of those that changed did so to credit all members as co-authors rather than vice versa.¹⁷⁹

3. Open Questions

Study 1 investigated co-author inclusion practices, but the data did not contain details on how songwriting royalties are allocated between the band members who are credited as co-authors.

If creators do consider it unfair for lesser contributors to receive equal co-authorship benefits, then we might expect that even though bands’ lesser contributors are most often treated as co-authors, they receive a smaller share of songwriting royalties than their co-authors who made the most significant contributions. This would be the practice predicted by the scholars advocating for a proportional split default. Study 2 was designed to test this hypothesis.

IV. DO LESSER CO-AUTHORS RECEIVE LESS ROYALTIES?

The scholars arguing for a proportional default split would predict that when collaborators’ contributions to a joint work are unequal, they prefer an unequal royalty split. Study 2 tests this hypothesis not only for music groups, but for co-written songs in general. Study 2a investigates the songwriting royalty percentage splits of the uneven contributions bands in the Gold Record database using two different approaches. Study 2b adapts one of these approaches to estimate the proportion of uneven co-authored songs in general, using co-written songs in the ASCAP repertory.

A. Study 2A: Gold Record Bands Royalty Splits

Study 2a compiles uneven Gold Record bands’ and their managers’ disclosures about their royalty splits, along with statements about their splits from other reliable sources. If the proportional preference hypothesis is correct, the results should indicate that when co-authors’ contributions are uneven, they prefer to split songwriting royalties unevenly as well.

1. Methodology

First, a coder¹⁸⁰ searched for information on the songwriting royalty split practices of every uneven band in the Gold Record database that includes all members as co-authors (n=140). Split information was found for 21% of these bands that met a standard of “reasonably certain” source reliability (29/140); on this basis their splits were classified as equal or unequal.¹⁸¹

Second, to gain further insight into how uneven bands split songwriting royalties, I consulted the ASCAP repertory. In 2015, ASCAP began to disclose the percentages of song royalties under the control of its repertory,¹⁸² likely in preparation for an antitrust review by the U.S. Department of Justice.¹⁸³ ASCAP is the only PRO that currently discloses the writers’ share of royalties it controls.¹⁸⁴ I used ASCAP’s disclosures on the proportion of royalties under its control to code each song by the uneven bands as either split equally, or not.¹⁸⁵ A coder searched the ASCAP repertory for songs by the uneven bands that include all members as co-authors (n=140) and with at least one member on whose behalf ASCAP does not collect royalties.¹⁸⁶ Twenty-two bands (22/140, or 16%) were identified for which split data could be inferred.

The basis for inferring how a song’s royalties are split involved dividing the total writer’s share by the number of credited writers for the song, then evaluating whether the percentage due to each writer under an equal split arrangement was a factor of the percent controlled by ASCAP. If so, the song was classified as split equally; otherwise, the song was classified as not split equally.¹⁸⁷ For example, for a song with two writers, if ASCAP controls 50% of the writer’s share of royalties, it follows that the non-ASCAP writer is receiving the remaining 50%.¹⁸⁸ On the other hand, if ASCAP controls more or less than 50%, the writers are splitting unequally.¹⁸⁹

2. Results

The two approaches for identifying royalty splits used in Study 2a—compiling the splits of bands that have publicly disclosed their arrangements and inferring splits using the ASCAP repertory—converge in suggesting that approximately 80% split equally. Both methods suggest a majority¹⁹⁰ of uneven bands nevertheless split royalties equally: the results of the online searches found that 83% (24/29) of disclosed splits were equal among band members; the PRO data suggests that 77% (17/22) of the bands split equally.

Using these two strategies, Study 2a was able to account for 33% of the uneven Gold Record bands that include all members as co-authors (46/140). The two methodologies produced results for different bands, with the exception of six bands for which results were found both ways. For these six bands, the different methodologies led to the same assigned split. These results indicate that most lesser contributors receive an equal split in the context of music groups. Study 2b investigates whether this is also true of co-written songs more generally.

B. Study 2b: All Co-authored Songs

To go beyond how bands split royalties and to infer whether lesser contributors for all co-authored songs tend to be rewarded equally, I applied the strategy of inferring splits based on the proportion of royalties controlled by ASCAP to all eligible co-authored songs in the ASCAP repertory.

1. Methodology

The ASCAP repertory contains nearly 7 million songs.¹⁹¹ More than 2.5 million of these songs are credited to two or more authors.¹⁹² However, royalty splits can only be inferred in cases where a song’s royalties are controlled by both ASCAP and another PRO. There were a few steps involved in identifying those songs,¹⁹³ and ultimately royalty split data was obtained for 1,237,764 works; this covers 92% of the songs ASCAP only partially controls, amounting to 48% of all co-authored songs in the ASCAP repertory.¹⁹⁴

Each song’s royalties were classified as split equally or split unequally, by the same methodology adopted in Study 2a. To account for potential misclassifications of unequally split songs as equally split songs, I estimated that a reasonable lower bound for the total proportion of equal split songs should include an 8% downward adjustment on the result of this classification method.¹⁹⁵ This gave an estimate of the overall proportion of equally split songs in the all co-authored songs ASCAP data.

The next step was to estimate the proportion of those equally split songs that were produced through uneven contributions by collaborators. As a guide, I referenced the proportions of bands including all members as co-authors for Gold Record bands whose songs were composed by members’ contributions which were even, uneven, or without contributions by all members. These two datasets are similar at a high level based on the available data.¹⁹⁶

2. Results

A significant majority (63%) of the co-authored songs split royalties equally.¹⁹⁷ To answer the research question, I needed to identify the subset of the ASCAP songs that were written with uneven contributions; however, the full dataset also includes songs written with even contributions, gift credits,¹⁹⁸ and sampling. As a guide for inferring the size of the subset of interest, I refer to Study 1 for the relative shares of the three categories of songwriting contributions of the Gold Record bands including all members as co-authors: even (30%), uneven (44%), and some members do not contribute (26%). Relying on these proportions, I first assume that of the 63% of equal split ASCAP songs, 30% were written with even contributions. The remaining 33% equal split ASCAP songs I assume to have been written with uneven contributions. I assume that 26% of the unequal ASCAP songs credit as writers individuals who did not make a copyrightable contribution (based on the proportion of some members do not contribute bands which did the same). This leaves 11% of the unequal split ASCAP songs assumed to be uneven contributions songs (37% unequal minus 26%), and suggests that the proportion of unevencontributions songs that is equally split is 75%. A further adjustment should be made to account for the possibility of “hidden inequality” described above,¹⁹⁹ which adjusts the estimated proportion downward by 8% to 67%.

This number is lower than the approximately 80% in Study 2a. One reason for this is that I have not taken into account sampling. Sampling inflates the number of total co-written songs, and specifically the number of unequal songs.²⁰⁰

There is no difference in equal splitting between name combinations that only appear once (66%) versus at least ten times (65%). Number of collaborations for a set of writers was negatively associated with equal splitting,²⁰¹ but nevertheless majority preference for equal splitting remained significant even with collaborative groupings with over one hundred credited works together (57%).²⁰² A higher number of credited writers was negatively associated with equal splitting.²⁰³ The majority preference for equal splitting flips with five or more writers (27%).²⁰⁴

V. GENERAL DISCUSSION

In this final Part, I review some limitations of the studies and how the findings answer the research questions, along with caveats on the support for the equal split rule. I discuss the legal implications and contributions of this research and preview other work focusing on the mechanisms that potentially drive these co-author inclusion and equal split practices.

A. Limitations

There are several limitations to the data and results of these studies; here I consider some of the most noteworthy. First, whereas a comprehensive database could be constructed to investigate the question of co-author inclusion (Study 1), this was not possible for exploring how royalties are split (Study 2). Instead, there are the convergent lines of Studies 2a and 2b. Each study involved making assumptions during data collection or analysis, which were necessary on account of data or resource limitations. To the extent these assumptions are not supported, the studies’ results and implications may be affected.

The results of the Gold Record database analysis may reflect survivor bias. Only a small fraction of all music groups earns Gold Records; it may be that less successful music groups are less likely to include minor contributors as co-authors. Although it cannot be ruled out, this seems unlikely because bands’ co-author inclusion choices are early business decisions in the groups’ lives, made before the arrival of great success, and are most often stable.

Songs are short by convention, which precluded investigating preferences when disparities in contributions are of the magnitude present in Aalmuhammed.²⁰⁵ Still, as discussed, the control doctrine has been applied more often than not regardless of the magnitude of the parties’ contributions, and, as argued, co-songwriting is the most important domain where the default rules are likely to apply in practice.

Figure 2. Studies 1 & 2: Research Questions and Results

B. Summary of Findings

The control doctrine has resulted in the exclusion of lesser contributors from joint authorship when there was no contract between the collaborators. This, along with other problematic effects, has caused some scholars to propose returning to the pre-control legal regime and retaining the equal split rule. Others propose putting in place a proportional split default rule to better address the concerns with the control doctrine, and implicitly, align with creators’ assumed allocation preferences.

To identify the best choices, Studies 1 and 2 sought to uncover the actual preferences of co-songwriters. I have argued that the best option for co-songwriters is presumptively the best rule on the whole for those collaborating to produce joint works.

1. Are Lesser Contributors Counted as Co-authors?

First, I explored whether or not lesser contributors in co-songwriting are typically rewarded with co-authorship (Study 1). To observe the leap from contributor to co-author, I constructed the Gold Record database of 1,003 bands—every band that both has a Gold Record and writes its own songs. I found that the inclusion of lesser contributors as co-authors has steadily increased for the past six decades, becoming the typical practice (63%) beginning in the 1990s. I also found that 75% of bands never changed their initial practice of including or not including all members as co-authors. This is consistent with a stable level of songwriting contributions. When bands did shift from their initial co-author crediting choices, it tended to be in the direction of more, rather than less, co-author inclusion. This could be explained by an increase in members’ songwriting contributions, but it also raises questions for future investigation about a possible ratcheting effect, whereby it is hard to renegotiate a generous initial co-author inclusion practice.

The strength of the co-author inclusion result is notable given the heterogeneity of the data, which includes bands from subgenres as diverse as Norteño, Metalcore, Eurodance, Contemporary Christian, Children’s Music, and Punk Rock. The music created by these groups appeals to a wide spectrum of people’s tastes.

This practice runs counter to the de facto exclusion of lesser contributors under the control doctrine. Additionally, to the extent that control is incompatible with recognizing more than a few authors because it is understood as a right to override others’ creative choices,²⁰⁶ the results are not consistent with co-songwriters sharing that view: songs created through the uneven contributions of four collaborators typically credit all involved.²⁰⁷

Although this preference data strengthens the case against the control doctrine, I find support for limits on grants of co-authorship even for contributors who have made copyrightable contributions. When group size exceeds four contributors, having made a copyrightable contribution—even an equal one—is no longer treated as sufficient for co-authorship in most cases. Thus, considerations beyond contributions do play a role in deciding who is granted co-authorship credit for a joint work, at least in collaborations at scale. This is consistent with the view in Aalmuhammed that “as the number of contributors grows and the work itself becomes less the product of one or two individuals, . . . the word [‘author’] is harder to apply.”²⁰⁸ Future research might investigate what these other considerations may be. Nevertheless, in the case of co-songwriting, the findings suggest large collaborations are uncommon. On the whole, the concepts and consequences of the control test are at odds with the revealed preferences of this significant creator population. Because it cuts against these revealed preferences, the transaction costs of the current legal regime are presumptively high to the extent that parties seek to contract out (though the data does not report contracting rates).

Future research may explore what accounts for this inclusivity trend. It may be due in part to an increase in the kinds of bands that tend to include all contributors as co-authors, such as smaller bands. There have also been changes in music industry standards and practices, which may have played a role. First, mechanical songwriting royalties doubled—and continued to increase over time—after the Copyright Act of 1976.²⁰⁹ As songwriting royalties increased in value, more band members may have sought a piece of the pie. Including all members as co-authors may have facilitated agreements to feature the strongest songs on albums without generating animosity.²¹⁰ Second, there were changes in what contributions were viewed as “songwriting.” In early Rock, the melody writer was considered the writer of the song. Early Rock was rooted in the Blues, and the rhythm portion of the song was often an uncopyrightable standard.²¹¹ Third, musicians have arguably become savvier as Rock culture has developed. In early Rock, the only legally sophisticated party was often the producer, studio owner, label owner, or bandleader. It was in that person’s best interest to limit the number of writers on the song and, if possible, add themselves as writers.²¹²

2. Do Lesser Contributing Co-authors Receive Less Royalties?

The converging lines of evidence from Studies 2a and 2b suggest that royalties are typically split equally, even with lesser contributing co-authors (over 70% of the time).²¹³ In Study 2a, the songwriting royalty splits of a third of the uneven contributions Gold Record bands were inferred based on information disclosed by the bands’ inner circles or ASCAP; in Study 2b, splits were inferred for co-songwriting more broadly, based on a sample of more than a quarter of co-authored songs registered with U.S. PROs.²¹⁴ Perhaps surprisingly, the underlying preference assumptions of scholars who have argued the law should be revised to favor contribution-based splits were not supported. Instead, the results throw support behind the proponents of the existing equal split rule.

As with initial co-author inclusion choices, there was stability in initial split choices. Co-authors who wrote together only once were as likely to split royalties equally as co-authors who collaborated one hundred times.

C. Legal Implications

Study 1 affirms the conventional wisdom, endangered by the control doctrine, that contributions are the most important consideration in granting co-authorship. Songwriting contributions overshadowed differences of genre, region, band size, and era. The copyrightability considerations standards have been on somewhat shaky ground as control has expanded to trump other factors in co-authorships tests. These results provide additional support for pushing back against that trend and reasserting a contributions-centered way of thinking about who is a co-author.

At the same time, the results imply that once co-authors are recognized, their comparative contributions are often disregarded when they allocate proceeds among themselves. Co-authorship practices appear as a step-function, rather than a matter of degree. Rather than provide a mandate for establishing a contributions-based default split rule, the findings suggest that the equal split rule is consistent with preferences and does not deter grants of co-authorship to lesser contributors. Taken together, Studies 1 and 2 suggest that equal co-authorship for lesser contributors is the practice of a plurality of the involved co-songwriters. On this basis, the studies lend support to the statutory intent to merge copyrightable contributions standards, or, at least, support the suggestion by Professor Mary LaFrance, and others, that a rebuttable presumption of intent is appropriate.

A return to the intent to merge co-authorship standard would predictably reach undesirable results in certain industries, most notably the film industry and editorial relationships. This section discusses two possible responses.²¹⁵

First, any default rule will not satisfy all situations. Parties can contract out of the default rule, and it is reasonable to expect that sophisticated parties will do so. Inevitably some may fail to put in place a contract through pure oversight. But it is inefficient to change the rule when such oversights are exceptional. In other contexts, when parties failed to contract around default rules, there have been costly settlements that have no doubt subsequently increased attention to such matters down the road.²¹⁶

Second, future research might explore a parameter-based approach to co-authorship determinations. For example, the number of collaborations was associated with co-author inclusion and royalty split. There has been considerable theoretical debate over the extent to which defaults should be “tailored” (that is, modified) such that they lead to different results for different parties based on some relevant characteristic. This has been recognized to potentially lead to more efficient outcomes by better reflecting decisions that parties would actually make in a costless environment.²¹⁷ Default tailoring comes with costs: the cost to lawmakers of identifying and implementing the most efficient tailoring, and the cost to parties of interacting with a default more specific to their circumstances than a one-size-fits-all rule.²¹⁸ Thus, the most efficiently tailored rule is likely one that reflects a discrete set of common practices, thereby reducing information costs. This may be why previous proposals to tailor the equal split default have focused on industry-based tailoring as a commonsense default unit. This Article has suggested that the number of collaborators is one potential parameter; if the size of collaborative groups predicts split preference across genres and regions, it is worth investigating whether it is a useful predictor across industries. Pursuing this and other leads²¹⁹ may bring about gains in efficient tailoring over and above what is possible with industry-based rules.²²⁰

D. Why Equality: Mechanisms

The data presented suggest that when it comes to relative rewards, co-songwriters, on balance, prefer equal over contributions-based allocations—even in unequal collaborations. What can account for this surprising preference for equality? A systematic investigation of the preference mechanisms at work is out of the scope of this Article. I conclude here by priming intuitions connected with the theoretical framework I use elsewhere for that purpose.

Context often determines which of a few interpersonal allocation rules we find to be most psychologically rewarding. There are many contexts in which we find equality—where everyone is rewarded in the same quantities—to be the most psychologically rewarding state of affairs. Under other circumstances, we may prefer contribution-based remuneration. A context can be defined, for example, by who is involved or what goals are involved. There are patterns to when we are likely to have these preferences, which have been studied under various research traditions in distributive justice.²²¹ Earlier, I noted that the members of a large number of bands are friends or family members. Theories that can provide a way of thinking about the influence of parties’ close relationships on the allocations they prefer when distributing a resource—such as royalties—among themselves, are most conducive for understanding this equality preference.²²²

CONCLUSION

The trends in co-songwriters’ preferences revealed by this research offer the first comprehensive look into decisions made every year, hundreds of thousands of times, offering a point of reference for creators. In songwriting, co-authorship matters. Not only does it confer status; it also confers money. For some musicians, co-authorship royalties are their retirement plan. As the lead singer in an all-female Punk Rock band explained songwriting credits, “we’re straight up talking business here.”²²³

And yet, in this Article I have looked at this “business” decision of how to share co-authorship and found that short-term financial self-interest is not the end of the story: main songwriters share songwriting credit, and songwriting royalties, much more generously than the standard by which lesser contributors would be rewarded under the control test. This revealed preference suggests that we can adopt a more inclusive legal criterion for co-authorship while retaining the equal split default and that we can do so without violating creators’ own sense of fairness.

APPENDIX

Table A1. Logistic Regression for Gold Record Bands 1959–2021: Are All Members Included as Co-authors?
Variable	log(OR)	95% CI	p-value
Songwriting (ref. cat.: Some members do not contribute)
Even	2.9	2.4, 3.5	<0.001**
Uneven	1.8	1.4, 2.1	<0.001**
Decade (ref. cat.: 1980s)
1960s and earlier	-0.94	-1.7, -0.20	0.016*
1970s	-0.33	-1.0, 0.27	0.3
1990s	0.50	0.06, 1.0	0.026*
2000s	0.74	0.23, 1.2	0.004**
2010s and later	0.90	0.23, 1.2	0.004**
Members (ref. cat.: 4)
2	0.91	0.43, 1.4	<0.001**
3	0.02	-0.42, 0.45	>0.9
5	-0.61	-1.1, -0.11	0.017*
6+	-1.5	-2.6, -0.56	0.003**
Genre (ref. cat.: Pop)
Rock	0.37	-0.14, 0.89	0.2
Hip Hop, R&B, Gospel, Jazz	-0.79	-1.4, -0.16	0.014*
Country	-1.0	-2.0, -0.09	0.034*
Metal	0.27	-0.52, 1.0	0.5
Latin	-1.5	-3.0, -0.18	0.032*
Punk	0.87	-0.29, 2.0	0.13
Electronic	-0.50	-1.8, 0.90	0.5
Reggae	1.0	-1.6, 4.1	0.5

Region (ref. cat.: Northeast)
Midwest	-0.68	-1.4, 0.04	0.069
West	0.01	-0.49, 0.51	>0.9
South	0.11	-0.43, 0.65	0.7
Non-USA	0.26	-0.26, 0.78	0.3
Notes: p < 0.05; *p < 0.005.

96 S. Cal. L. Rev. 607

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Sarah Polcz*

* Fellow, Stanford Law School. For comments on versions of this Article, I thank Lisa Ouellette, Paul Goldstein, Robert MacCoun, Samantha Zyontz, Joel Shor, Anna Lewis, and Adam Brown. For helpful feedback, I also thank the participants of the 2022 Copyright Scholarship Roundtable at Columbia Law School, the Stanford Legal Research in Progress Workshop 2020, the Intellectual Property Scholars Conference 2020 at Stanford Law School, and the Works-in-Progress Intellectual Property Colloquium 2020 at Santa Clara University School of Law. Thank you to Matthew Kelleher and William Button for outstanding research support.

The Limitations of Applying the Stored Communications Act to Social Media

July 2023July 2023Victoria M. Allen*

The advent of social media has increasingly affected how people live and communicate. Millions of Americans use social media every day, and the numbers continue to grow. The motivation to post on social media is multifactorial and includes a desire to stay connected, find others with shared interests, change opinions, and encourage action, but posting also serves to boost one’s self-esteem and self-worth. However, posting on social media creates a serious risk of self-disclosure, with people revealing more intimate details online than they would in more traditional settings without really appreciating the privacy issues and potential negative consequences related to such disclosures.

As social media use continues to grow, its use as a tool in police investigations has also increased. Both the content and metadata associated with social media posts now routinely aid law enforcement authorities in finding patterns and, importantly, in establishing timelines in criminal investigations. Thus, there is an urgent need to revise the existing laws governing stored communications—to better adapt them to these new, evolving technologies and improve the legal framework governing online privacy rights. This Note argues that various aspects of the Stored Communications Act (“SCA”) are outdated and that thirty-six years after it was enacted, it is time for an update that reflects the changing landscape of evolving technological advances.

The Note explores how the internet and social media use have evolved over the years and explains why the SCA no longer sufficiently protects consumers from government acquisition of their information. Particular emphasis is placed on the novelty of social media “Stories,” a technology unlike any that Congress could have imagined when it enacted the SCA in 1986. The Note examines the history of the SCA—with a focus on the Fourth Amendment, the Electronic Communications Privacy Act, and Supreme Court cases addressing the applicability of the Fourth Amendment to various forms of communication technology—before analyzing the SCA in detail, and looks at how law enforcement agencies can obtain these communications for use in criminal investigations. The Note concludes by arguing that the SCA needs to be revised to more adequately apply to today’s social media technologies since their content, and non-content, does not easily fit into the currently delineated categories. Revising the SCA would afford greater protection to consumer communication rights: not only would the SCA better apply to modern technology, but it would also be more readily applicable to future emerging media technologies.

INTRODUCTION

The rise of social media has significantly impacted the way people live and communicate, and the trend toward extensive social media use will likely only continue to grow. According to a Pew Research Center study, seven in ten Americans use social media.¹ On average, people spend an estimated two and a half hours on social media platforms over the course of their day,² and “[a] majority of Facebook, Snapchat and Instagram users say they visit these platforms on a daily basis.”³ More specifically, 69% of Americans use Facebook, 40% of Americans use Instagram, and 25% of Americans use Snapchat.⁴ These percentages represent a significant number of people—approximately 230 million, 133 million, and 83 million, respectively.⁵ Further, social media users make extensive use of the “Stories”⁶ feature, with one billion Facebook Stories being posted daily and five hundred million daily active users of Instagram Stories worldwide.⁷ The motivation to post on social media is multifactorial and includes a desire to stay connected, find others with shared interests, change opinions, and encourage action, but posting also serves to boost one’s self-esteem and self-worth.⁸ These desires create a serious risk of self-disclosure on social media, with people revealing more intimate details online than they would in more traditional settings without really appreciating the privacy issues and potential negative consequences related to such disclosures.

Just as social media has become popular with the American public, it is also becoming increasingly utilized as a tool in police investigations. A 2012 survey showed that four out of five law enforcement agents used social media to gather intelligence during investigations.⁹ Not only do authorities look online for public information, but they also request access to private data directly from social media providers—which can help them build their criminal cases. For example, after finding photos and comments “glamorizing alcohol abuse” on a woman’s MySpace page, prosecutors were able to use them as evidence and advocate for a longer sentence for her vehicular manslaughter conviction.¹⁰ Since people are less inhibited when it comes to social media disclosures, they often share details of their lives and more controversial opinions than they may in other forums. After these once private thoughts are stored electronically, they become more easily accessible to investigators. Not only can the content of social media posts aid criminal investigations, but the related metadata¹¹ alone “can help law enforcement authorities to find patterns, establish timelines and point to gaps in the data.”¹² Therefore, social media metadata can be just as easily used to gather information on a suspect as the actual content of a post. Because the trend toward extensive social media use will likely endure, there is an urgent need to revise the laws governing stored communications—to better adapt them to these evolving technologies and improve the legal framework governing online privacy rights.

This Note argues that various aspects of the Stored Communications Act (“SCA”) are outdated and that thirty-six years after it was enacted, it is time for an update that reflects the changing landscape of evolving technological advances. Part I of this Note explores how the internet and social media have evolved throughout the years and explains why the SCA no longer affords sufficient protections against government acquisition of consumer information. It discusses the evolution and expansion of social media platforms. Particular emphasis is placed on the novelty of social media Stories, which are unlike any technology that Congress could have imagined when they enacted the SCA in 1986.

Next, Part II examines the history behind the SCA to explain why the law was initially passed by Congress, with a focus on the Fourth Amendment, the Electronic Communications Privacy Act (“ECPA”), and Supreme Court cases addressing the applicability of the Fourth Amendment to various forms of technology. Part III analyzes the SCA in detail, focusing on the distinctions made between the different types of internet service providers (“ISPs”) and the different aspects of communications (content versus non-content data). It looks at how the content and non-content information—for example, metadata including a user’s identity, location, and other data not part of the main substance of the communication—can be obtained by law enforcement in the course of a criminal investigation.

Part IV argues that the SCA cannot be easily applied to social media today because it does not fit within the categories delineated in the SCA. Most importantly, it highlights how (1) social media content does not easily fit into either of the SCA’s currently defined categories because Congress could not have anticipated the advances in the technologies that exist today; and (2) “non-content” is not fully defined in the statute, and therefore lends itself to being more easily obtained in some situations as opposed to others. Finally, Part V suggests ways in which the SCA can be revised to more adequately apply to social media today and ultimately protect the right to privacy guaranteed by the U.S. Constitution.

I. INTERNET PRIVACY AND EVOLVING TECHNOLOGY

Americans are entitled to their right to privacy, which on third-party ISPs such as Facebook and MySpace is protected by the SCA.¹³ One problem with the SCA, however, is that it is dated. Although the internet was invented in the 1960s, it was not widely used until 1983, when computers on different networks were finally able to easily communicate with one another.¹⁴ When the SCA was enacted in 1986—just three years later—Congress had only a limited experience with internet use and the potential privacy problems it could create, and had certainly not envisioned the extensive modern use of social media. This partially accounts for some of the weaknesses in this legislation and why the SCA is often difficult to apply to social media today.

A. Evolution of Social Media Platforms

Social media is defined as “forms of electronic communication . . . through which users create online communities to share information, ideas, personal messages, and other content.”¹⁵ This definition implies that social media could not exist without the internet, and that it depends on user-generated content.¹⁶ While it can be said that social media began in 1971, when the first email was sent,¹⁷ for many people social media really began in the late 1990s or early 2000s—years after the SCA was enacted—with the advent of messaging services such as AOL and MSN Messenger.¹⁸ MySpace, arguably the “most popular and influential” of the early social media platforms, was later launched in August 2003,¹⁹ and it allowed individuals to interact by commenting on each other’s profiles and sending private messages. It was the largest social media platform until Facebook, created in 2004, overtook it in 2008.²⁰ Facebook has now grown to be the largest social media platform in the world with almost three billion monthly active users.²¹

The number and types of social media platforms have grown extensively. Today, other prominent social media platforms include Instagram and Snapchat. Instagram was launched in 2010 and is a platform focused on sharing photos and videos.²² Snapchat was created in 2011 and gained its popularity from users’ ability to send each other pictures or videos (“Snaps”) that disappear shortly after being opened.²³ These platforms allow users to share content with their friends, some of which they believe to be “private,” visible only to those friends they allow to see it. However, the widespread use of these platforms has created new issues with how the government can legally access and use these communications.

B. Emergence of Stories on Social Media Platforms

The continued evolution and development of new information sharing functions on social media platforms have created multiple issues concerning user privacy rights. For example, in 2013, Snapchat began to allow people to share “Stories” that are displayed for twenty-four hours before becoming inaccessible.²⁴ Stories are a collection of individual Snaps that are played in the order in which they were created and allow users to share their entire day in a narrative manner. Today, Stories are also available on a variety of other social media platforms, including Facebook and Instagram.²⁵ Part of the reason why Stories are so successful is because they are only available temporarily, so people can post small daily updates or silly images that they only want visible for a short period of time.²⁶ Therefore, users reasonably believe that their content will remain private and then disappear, becoming permanently inaccessible. Another reason for the success of Stories is that “social media [S]tories tend to be more spontaneous” than an individual’s carefully curated feed, making it feel more “casual.”²⁷ As a result, these Stories can be extremely useful to law enforcement, as they can provide a less filtered view of an individual’s daily life and a timeline for the posted events. Thus, the challenge becomes balancing users’ right to privacy with the government’s need for access to information in order to investigate criminal offenses.

As it exists now, the SCA does not provide an adequate statutory framework for protecting communications on the various aforementioned social media platforms and, importantly, does not specifically address new advances in technology such as transient Snapchat and Instagram Stories. Since the SCA does not adequately protect individuals from unlawful searches of their private social media data, there is a need for Congress to reform the statute to accommodate evolving technology.

II. HISTORY OF THE STORED COMMUNICATIONS ACT

A. The Fourth Amendment

The Fourth Amendment to the Constitution protects “[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.”²⁸ While the meaning of “search” is not immediately defined by the Amendment, the Supreme Court has held that “[a] ‘search’ occurs when an expectation of privacy that society is prepared to consider reasonable is infringed”²⁹ and that “[i]f the inspection by police does not intrude upon a legitimate expectation of privacy, there is no ‘search.’ ”³⁰ Thus, when it comes to physical searches, the meaning of the Fourth Amendment is well understood,³¹ whereas what constitutes a search in the digital context is more uncertain.

In Olmstead v. United States, the Supreme Court held that wiretapping did not violate the Fourth Amendment because the lack of physical trespass and seizure of anything tangible meant there was no search or seizure.³² Because the Court refused to expand the Fourth Amendment to protect telephone communications,³³ the government could legally intercept citizens’ communications as long as they did not physically enter their homes. Olmstead was later overruled by Katz v. United States,³⁴ indicating a change in ideology that afforded citizens protection of their privacy even without a physical search. Because Katz held that a physical intrusion was not necessary to invoke the Fourth Amendment, online searches—which lack physical intrusions—can still violate the Fourth Amendment.

B. The Electronic Communications Privacy Act

In light of these changing viewpoints on the applicability of Fourth Amendment protections, Congress enacted the ECPA³⁵ in 1986 in an effort to adapt the doctrines of the Fourth Amendment to the various emerging technologies. The SCA, which provides privacy protections to stored electronic and wire communications, is one part of the ECPA. The ECPA was created with the purpose of protecting American citizens from “the unauthorized interception of electronic communications.”³⁶ Congress recognized a need to “update and clarify Federal privacy protections and standards in light of dramatic changes in new computer and telecommunications technologies.”³⁷ Rightly, Congress worried that due to these advances, personal communications could be intercepted by individuals who had no right to obtain them, and thus felt it was important to enact the ECPA.³⁸ However, the scope of the ECPA did not fully anticipate the impact of the growth and extent of social media.

C. Supreme Court Cases Addressing the Fourth Amendment and Technology

More recently, the Supreme Court heard a series of cases that addressed the applicability of the Fourth Amendment to newer technologies. In each of these cases, the Supreme Court Justices grappled with applying the existing legal framework, indicating that it is time for a change. In Justice Sotomayor’s concurring opinion in United States v. Jones,³⁹ she emphasized that in the absence of a physical trespass, a Fourth Amendment search occurs “when the government violates a subjective expectation of privacy that society recognizes as reasonable.”⁴⁰ She also argued that “it may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties” because “[t]his approach is ill suited to the digital age.”⁴¹ Justice Sotomayor’s statements highlight the need to reevaluate the applicability of the current legal framework to new technologies.

Two years later, in Riley v. California,⁴² Justice Roberts acknowledged that because technology enables modern cell phones to contain and potentially reveal a wealth of private information, cell phones require greater privacy protections than would be necessary for a traditional search.⁴³ Four years after Riley, the Court once again addressed warrantless searches in Carpenter v. United States, this time through the collection of cell phone records from a third party.⁴⁴ Again, Justice Roberts recognized the need for stronger privacy protections, stating that “a warrant is required in the rare case where the suspect has a legitimate privacy interest in records held by a third party,” such as the cell site records indicating the defendant’s location and movements.⁴⁵ The government had acquired this information pursuant to a court order issued under the SCA, which was obtained based on evidence that the information might be relevant to the ongoing investigation.⁴⁶ Finding this burden of proof—requiring only that the information might be relevant, which is lower than the probable cause required to obtain a warrant—to be unacceptable, the Court held that to access these cell site records, a warrant was required.⁴⁷ The differing standards of proof required to obtain warrants and court orders to access records from these new technologies illustrate that sometimes the SCA troublingly affords lesser protections to individuals’ private information.

III. THE STORED COMMUNICATIONS ACT

The SCA was enacted to regulate electronic and wire communications that are stored on third-party servers⁴⁸ and therefore governs the interaction between government investigators and administrators of third-party service providers.⁴⁹ It was meant to expand the privacy protections afforded by the Fourth Amendment to digital content, clarifying its applicability. However, the SCA regulates retrospective communications, meaning it only applies when the government seeks to obtain information already in a provider’s possession.⁵⁰ Additionally, the SCA only applies to two types of ISPs: providers of electronic communication service (“ECS”) and providers of remote computing service (“RCS”).⁵¹ An ECS is defined as “any service which provides . . . the ability to send or receive wire or electronic communications;”⁵² email and cell phone service providers would therefore be examples of ECS providers. An RCS, on the other hand, is defined as any service that provides to the public “computer storage or processing services by means of an electronic communications system.”⁵³ Thus, once an email has been received but not deleted or a voicemail has been left in storage for later review, email and cell phone services are treated as RCS providers. Because ECS and RCS providers are afforded different levels of protection, it is important to be able to appropriately categorize modern ISPs to determine how much protection users’ communications will be given.

While transmitting communications and storing communications are different functions, this distinction matters less today, as many modern ISPs provide both services. In 1986, however, Congress was concerned about businesses such as hospitals and banks using remote computing services to store records and process data.⁵⁴ Thus, they felt the need to create the RCS category to address this concern.⁵⁵ Generally, the SCA prohibits disclosure of both content and non-content⁵⁶ data of customer communications, but the SCA provides exceptions to this rule.⁵⁷ These exceptions, which are discussed below, are divided between § 2702, which regulates voluntary disclosure, and § 2703, which regulates required disclosure.

A. Disclosure of the Contents of Social Media Posts

1. Voluntary Disclosure of Customer Communications

Section 2702(b) details the nine circumstances in which a provider may voluntarily disclose the contents of a customer’s communications.⁵⁸ These exceptions include allowing the contents to be disclosed “to an addressee or intended recipient of such communication” and “with the lawful consent of the originator or an addressee or intended recipient of such communication.”⁵⁹

as otherwise authorized in section 2517, 2511(2)(a), or 2703 of [Title 18]; . . . to a person employed or authorized or whose facilities are used to forward such communication to its destination; . . . as may be necessarily incident to the rendition of the service or to the protection of the rights or property of the provider of that service; “to the National Center for Missing and Exploited Children, in connection with a report submitted thereto under section 2258A; . . . to a law enforcement agency . . . if the contents . . . were inadvertently obtained by the service provider; and . . . appear to pertain to the commission of a crime; . . . to a governmental entity, if the provider, in good faith, believes that an emergency involving danger of death or serious physical injury to any person requires disclosure without delay of communications relating to the emergency; or . . . to a foreign government pursuant to an order from a foreign government that is subject to an executive agreement that the Attorney General has determined and certified to Congress satisfies section 2523.

Id. § 2702(b)(2), (4)–(9). For the most part, the communications can be disclosed only with the permission of the sender or intended recipient, which protects the user, or without their permission in the case of an emergency, such as a missing child.⁶⁰ Therefore, while individuals are generally protected against voluntary disclosures of their private information by ISPs, it does not mean that the government is unable to obtain this information; it can be compelled through required disclosure under § 2703.

2. Required Disclosure of Customer Communications

Should the government decide that obtaining an individual’s communications is essential for building a criminal case against them, the disclosure of those communications is governed by § 2703.⁶¹ This is where the largest privacy threat to social media users lies, as ISPs are then legally required to turn over the contents of customer communications to law enforcement. How the government goes about getting this information under § 2703, however, depends on a variety of factors, beginning with whether the ISP is categorized as an ECS or an RCS.

If the government requires information from an RCS, there are three ways for it to compel disclosure.⁶² First, the government can compel disclosure without notifying the customer if “the governmental entity obtains a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures . . . ) by a court of competent jurisdiction.”⁶³ Alternatively, if the government provides notice to the customer, it can compel disclosure by using either (1) “an administrative subpoena authorized by a Federal or State statute or a Federal or State grand jury or trial subpoena;” or (2) “a court order . . . [obtained] under subsection [2703](d).”⁶⁴ Warrants place a higher burden on the government in order to obtain the requested information, while subpoenas and court orders are more easily obtainable. Thus, allowing the government to choose the second or third method to avoid having to obtain a warrant shifts the burden to the individual, who then must object to the subpoena or court order to protect their private information.

Required disclosure from an ECS, on the other hand, is even more complicated because it also considers information about the age of the communication.⁶⁵ If the communication is 180 days old or less, the government may only compel disclosure “pursuant to a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures . . . ) by a court of competent jurisdiction.”⁶⁶ If the communication is more than 180 days old, however, the government can compel disclosure with either a warrant or, if prior notice is provided, a subpoena or court order.⁶⁷ In effect, this makes it easier for investigators to obtain older communications, with no explanation as to why the 180-day mark is significant; thus, in this situation, users are arbitrarily⁶⁸ afforded less protections.

B. Disclosure of the Non-Content Data of Social Media Posts

1. Voluntary Disclosure of Customer Records

Section 2702(a)(3) prohibits ECS and RCS providers from “divulg[ing] a record or other information pertaining to a subscriber to or customer of such service . . . to any governmental entity.”⁶⁹ However, § 2702(c) provides an exception to this rule: “A provider . . . may divulge a record or other information pertaining to a subscriber to or customer of such service . . . as otherwise authorized in section 2703.”⁷⁰ Therefore, while the SCA prevents ECS and RCS providers from voluntarily disclosing non-content information to governmental entities, as with content, the government can still obtain the information by utilizing § 2703’s required disclosure provision.

2. Required Disclosure of Customer Records

Section 2703(c)(1) states that a governmental entity can require an ECS or RCS provider to disclose a record or other information when the governmental entity “obtains a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures . . . ) by a court of competent jurisdiction”; “obtains a court order”; “has the consent of the subscriber or customer”; “submits a formal written request relevant to a law enforcement investigation concerning telemarketing fraud”; or “seeks information” under § 2703(c)(2).⁷¹ Section 2703(c)(2) allows ECS and RCS providers to disclose the name; address; telephone connection records (or records of session times and durations); length of service and types of service utilized; subscriber number; and “means and source of payment” when the governmental entity “uses an administrative subpoena authorized by a Federal or State statute or a Federal or State grand jury or trial subpoena or any means available under [§ 2703(c)](1)].”⁷² Again, governmental entities are able to obtain varying amounts of private information about customers from ECS and RCS providers with either a warrant or a court order, sometimes even with only a subpoena. Even more troubling, § 2703(c) does not require the government entity receiving the records or information to provide notice to the customer.⁷³ Thus, subscribers’ privacy may be being infringed without their knowledge, providing them with fewer opportunities to protect themselves.

IV. SOCIAL MEDIA AND THE STORED COMMUNICATIONS ACT

Prior to 2010, no court had specifically addressed whether social media platforms were within the jurisdiction of the SCA.⁷⁴ In order for the SCA to apply to social media platforms, these ISPs must be considered either ECS or RCS providers. The District Court for the Central District of California was the first to examine whether social media platforms were ECS or RCS providers in Crispin v. Christian Audigier, Inc.⁷⁵ The district court held that because the three social media platforms in question provided either private messaging or email services, they qualified as ECS providers.⁷⁶ This demonstrated that the SCA could be applied to social media platforms and can, therefore, be used to control the release of social media communications. While Crispin made it clear that Facebook, Instagram, and Snapchat would be governed by the SCA, it remains unclear whether these platforms qualify as an ECS, an RCS, or both, in the context of specific functions. As a result, which regulations should be applied when the government seeks to obtain users’ content (or non-content) from social media platforms during a criminal investigation remains uncertain.

A. Obtaining Contents of Social Media Posts

1. Obtaining Contents from Private Social Media Accounts

The SCA only applies to communications that are not “readily accessible to the general public.”⁷⁷ Thus, it is important to understand how a user’s varying privacy settings on social media platforms can affect the applicability of the SCA. Facebook, Instagram, and Snapchat each have varying features that provide users with controls to limit who can see the content they have posted on their individual accounts, in some instances allowing the users to limit who can view individual posts as well, and the ability to block other users from viewing their content.⁷⁸ Accordingly, should a user want their social media content to be private, they have the ability to set those limits using the social media platform settings.

In Crispin, the court held that “[u]nquestionably, the case law . . . require[s] that [user content] be restricted in some fashion . . . [to] merit protection under the SCA.”⁷⁹ Therefore, if a user sets their content visibility to anything other than public, it qualifies as private. This was confirmed in Ehling v. Monmouth-Ocean Hospital Service Corp., in which the District Court of New Jersey found that “when users ma[d]e their Facebook wall posts inaccessible to the general public, the wall posts [we]re ‘configured to be private’ for the purposes of the SCA.”⁸⁰ Similarly, in Facebook v. Superior Court (Hunter), the Supreme Court of California held that social media posts that were configured to be public fell within § 2702(b)(3)’s lawful consent exception, which allows ISPs to disclose a user’s content with the user’s consent.⁸¹ By this logic, if a user’s content is visible to the public, they are consenting to the RCS provider’s disclosure of their content. The SCA, therefore, does not protect social media content that is posted publicly because consent is an exception to the prohibition of voluntary disclosure under § 2702. The Hunter court also held that “restricted communications sent to numerous recipients cannot be deemed to be public—and do not fall within the lawful consent exception.”⁸² In other words, even if social media communications are limited to a large group of people, that does not mean these posts are considered public. According to the Ehling court, “the critical inquiry is whether Facebook users took steps to limit access to the information . . . . Privacy protection provided by the SCA does not depend on the number of Facebook friends that a user has.”⁸³ By restricting one’s content with privacy settings, a social media user can therefore take advantage of the SCA’s privacy protections and make it more difficult for the government to obtain their content—by requiring them to get a warrant, for example—for use in a criminal case, but not all users are that savvy or careful.

Based on this jurisprudence, it should not matter how broad the user’s privacy settings are—as long as the individual specifically took steps to limit who can view their content, it becomes protected from voluntary disclosure. This is not foolproof, however, because, as discussed earlier, disclosure may still be permitted if authorized by § 2703.⁸⁴ This remains problematic because, as Justice Sotomayor stated in Jones, a Fourth Amendment search online occurs when the government violates a “subjective expectation of privacy[,]”⁸⁵ and one could argue that when an individual invokes privacy settings, they reasonably expect that their content will be kept private. If obtaining individuals’ social media data constitutes a search, then under Justice Roberts’s logic in Carpenter, a warrant should be required because social media content can contain lots of information about a person’s day, including their location and movements, like the cell site records in Carpenter. Therefore, it stands to reason that all searches of private social media content should require a warrant, which is not currently the case under the SCA.

2. Social Media: Does Disclosure of Its Content Follow ECS or RCS Regulations?

As previously discussed, the SCA has different standards for an ECS than for an RCS—the government can more easily obtain communications from an RCS, whereas obtaining communications from an ECS depends on how long ago the communications were created, thus emphasizing the importance of properly categorizing each social media platform. In Crispin, the court found that social media platforms can be characterized differently depending on the state of the messages: before the messages have been opened, ISPs operate as ECS providers, but once the messages have been opened and retained, the ISPs operate as RCS providers.⁸⁶ This creates significant complexity and results in variability in how the SCA is applied to each social media platform, given the different standards between RCS and ECS providers and the difficulty in determining which standard will apply.

The Crispin court acknowledged that Facebook wall posts and MySpace comments “present a distinct and more difficult question” as to whether the social media platforms are acting as ECS or RCS providers.⁸⁷ On one hand, the court stated that Facebook and MySpace were ECS providers with respect to wall posts and comments because they were being held for “backup purposes once read.”⁸⁸ Here, the court relied on Snow v. DIRECTV, Inc., in which a district court found that because electronic bulletin board services (“BBS”) did not have temporary, intermediate storage, they were actually storing the information for backup purposes and thus were an ECS.⁸⁹ The court analogized Facebook and MySpace wall posts and comments to BBS, concluding that these posts and comments were also being stored for backup purposes since they were not deleted after being read, and thus the social media platforms should be considered ECS providers.⁹⁰

On the other hand, the court also said that Facebook and MySpace could be considered RCS providers with respect to wall posts and comments because they maintained these communications not only for storage, but also for display purposes, as users wanted their friends to be able to see the communications.⁹¹ The court relied on Viacom International Inc. v. YouTube Inc. in this instance, analogizing Facebook wall posts and MySpace comments to private YouTube videos.⁹² In Viacom, the court found that YouTube was an RCS provider because it stored videos on behalf of its subscribers.⁹³ Thus, the Crispin court concluded that Facebook wall posts and MySpace comments, like YouTube videos, can be stored for the purpose of allowing other users to view the content, thus making Facebook and MySpace RCS providers, like YouTube.⁹⁴ Ultimately, the court did not rule whether Facebook and MySpace were ECS or RCS providers with respect to wall posts and comments, remanding the case for further development.⁹⁵ This complexity demonstrates how ill-suited the SCA currently is to protect individuals’ privacy on social media platforms, as there is no clear and consistent way to apply it. Further, the arguments made in Crispin emphasize just how arbitrary the distinction between an RCS and ECS provider can be when it comes to social media platforms. Because social media platforms do not fit neatly into either category, courts can come to different conclusions as to how these ISPs should be regulated, thus leading to uncertainty regarding the protection of privacy rights of social media users. This arbitrariness can be explained by the fact that the SCA was written in 1986, as articulated in Konop v. Hawaiian Airlines, Inc.:

[T]he ECPA was written prior to the advent of the Internet and the World Wide Web. As a result, the existing statutory framework is ill-suited to address modern forms of communication like [social media platforms]. Courts have struggled to analyze problems involving modern technology within the confines of this statutory framework, often with unsatisfying results.⁹⁶

The Konop court’s words make clear that the SCA has become outdated because Congress was unable to foresee the problems that would arise for privacy protections resulting from not yet existing communication technologies. This is further supported by the fact that the Crispin court was unable to make a decision regarding the status of Facebook and MySpace with respect to wall posts and comments, given the limitations in clearly and consistently applying the SCA to communications on the various social media platforms.⁹⁷ Courts’ inability to readily place certain features of social media platforms into existing categories highlights the inadequacy of the SCA in affording privacy rights to users of the prevalent modern technologies and supports that now is the time to change the SCA to clarify its applicability and afford stronger protections for various types of social media communications by creating more appropriate categories that these ISPs can be classified into.

3. Challenges in Applying SCA Content Disclosure to Stories

Stories are a relatively new feature of social media platforms, having only been in existence since 2013.⁹⁸ Like with the aforementioned difficulty in generally applying the SCA to social media platforms and user content, Stories, which disappear within twenty-four hours, provide another example that highlights the limited applicability of the current statutory framework under the SCA to modern communication technologies. From a privacy perspective, the good news is that most of these posts are removed from ISPs’ servers as soon as the twenty-four hour period is up.⁹⁹ Since the content is no longer on the social media platform’s server, it is not possible for ISPs to disclose this content—even pursuant to a court order, subpoena, or warrant—because the content would no longer be in storage.¹⁰⁰ However, concerns remain for any content that remains saved on the server, which might still be obtainable for criminal investigations under the current SCA.

In addition, both Facebook and Instagram Stories can be saved in Story Archives,¹⁰¹ and Snapchat Stories can be saved in Memories.¹⁰² This content, therefore, could feasibly be disclosed to the government under the SCA if the proper exceptions and procedures were met. Because part of the appeal of Stories is that posts are only available for twenty-four hours, users likely do not think about how long their content is maintained in storage. Rather, many incorrectly assume that the content has been permanently deleted when the twenty-four hours expire. The problem here is that if Stories are governed by current ECS rules, once Stories are more than 180 days old, they can be obtained with notice and a subpoena or court order. This goes against the intent underlying Justice Robert’s opinion in Carpenter because one could similarly argue that individuals who post Stories believe they have a reasonable expectation of privacy in these Stories that are now only available for their own view, yet they can, in fact, still be obtained with lesser protections than a warrant. Therefore, even though the SCA was intended to extend the protections of the Fourth Amendment to online communications, currently it does so unsuccessfully, particularly in the case of Stories.

Because Stories are so new, there have not been many cases addressing how the SCA applies to them. In Facebook, Inc. v. Pepe, the District of Columbia Court of Appeals considered an allegedly sent “disappearing Instagram ‘Story’ ” for the first time.¹⁰³ The court found that the Instagram Story was content under the SCA, and that because James Pepe was an “addressee or intended recipient” under § 2702(b), Facebook was permitted to disclose any Instagram Stories that were responsive to the subpoena.¹⁰⁴ However, this addressee or intended recipient exception would not apply if the government were seeking disclosure in a criminal case, as the individual who posted the Story would likely not have invited a government official to view their private Facebook, Instagram, or Snapchat Story. Thus, the inquiry then shifts to consider whether social media platforms are acting as RCS or ECS providers when it comes to Stories.

One could analogize Stories to Facebook wall posts and MySpace comments when applying the SCA to social media Stories. Following the Crispin court, this would mean that ISPs offering Stories could be considered either RSC or ECS providers. The first argument is that Facebook, Instagram, and Snapchat act as ECS providers when individuals post Stories because the individual is “sending” the electronic communication to the people who they have allowed to view it.¹⁰⁵ This would follow from analogizing Stories to wall posts or comments that are in “backup” storage. As per Crispin, if the messages are being stored on the servers solely because they were not deleted, then they are in backup storage and, thus, should be governed by ECS rules. Unfortunately, users do not usually think about deleting this type of content because they know that once it disappears, no one else can see it. However, what they often fail to realize is that these communications are then considered to be in backup storage, meaning they can still be disclosed to the government under the SCA.

Alternatively, Facebook, Instagram, and Snapchat could be considered RCS providers because they are simply storing the Stories on the server for others to view.¹⁰⁶ In Crispin, wall posts were compared to YouTube videos that were stored for the purpose of allowing other users to view the content.¹⁰⁷ Arguably, Stories are also stored for the purpose of allowing others to view them, not simply because they have not been deleted. Therefore, even though a Story disappears after twenty-four hours, the user can reshare the content from their Archive, similar to changing a YouTube video’s settings to modify who can view it at any point in time.

On the other hand, Stories could also be analogized to private messages, which further complicates the analysis of SCA protections, particularly when considering the reasoning in Crispin, which stated that when a message is unread, the ISP acts as an ECS, but once the message has been read, the ISP then acts as an RCS.¹⁰⁸ Stories can be viewed by whomever the user allows, depending on their privacy settings, meaning that at any given point in time, the Story might have been viewed by a portion, but not all, of the potential audience. Thus, is the Story considered “unread” until all possible viewers have seen it, or does it switch to being “read” once at least one individual has viewed it? Alternatively, a Story could be “sent” while it is available for viewing by others but then switched to “read” once the twenty-four hours are up.

Whether or not a Story is considered to be an ECS or an RCS function directly impacts how law enforcement agencies can obtain its contents since the content of a Story would only be protected with a warrant if it were governed by ECS rules and 180 days old or less. Otherwise, Stories could be obtained with either a subpoena or a court order, making them easier to acquire for criminal investigations. These types of questions have not yet been adequately addressed by courts, and because Stories have qualities of both RCS and ECS communications, it is not possible to consistently predict whether RCS or ECS rules should govern in individual cases. The difficulty in determining how to appropriately apply the SCA to Stories supports the need for the proposed changes to the SCA.

B. Obtaining Non-Content Data From Social Media Posts

1. Applying SCA Non-Content Disclosure to Social Media Platforms

Disclosure of non-content data stored by social media platforms is different from disclosure of content in that non-content disclosure does not depend on whether the provider is an ECS or an RCS. While content is defined as including “any information concerning the substance, purport, or meaning of that communication,”¹⁰⁹ non-content is not well-defined. The SCA does, however, define some non-content data that can be obtained with only a subpoena, including the user’s name, address, and telephone number.¹¹⁰ This stems from the third-party doctrine, which states “the
Fourth Amendment does not prohibit the [government from] obtaining . . . information revealed to a third party.”¹¹¹ This creates an exception to the reasonable expectation of privacy that is protected by the Fourth Amendment: once an individual voluntarily shares information with a third party, they lose any reasonable expectation of privacy in that information.¹¹² It can be assumed, however, that non-content data is any information that is not the main substance of the communication, including the metadata incorporated in the communication, for example, the user’s identity, location, payment information, and telephone number.¹¹³ This is problematic because under § 2703(c), non-content data can sometimes be easily obtained by the government with a court order. Because the SCA does not explicitly state which types of non-content data can be obtained with a court order and which require a warrant, a lot of discretion is left to police officers and the courts.

“Some non-content information, particularly associational information and location information, is inherently expressive, capable of directly exposing intimate details of an individual’s life.”¹¹⁴ In the age of social media, people are constantly posting images and videos online;¹¹⁵ when people take photos, for example, the image files contain metadata that includes the time and date when the image was taken, along with the exact location where the photograph was taken.¹¹⁶ Facebook, Instagram, and Snapchat collect a lot of information about an individual’s daily life, including sensitive location information.¹¹⁷ Like wireless providers, Facebook, Instagram, and Snapchat are all able to collect individuals’ locations from Bluetooth signals, wireless networks, and cell towers.¹¹⁸ Additionally, these platforms also store information such as the location, date, and time at which the photograph or file was created.¹¹⁹ This information could be used in a criminal investigation to pinpoint the time and place where a crime occurred or where a suspect was located at a particular time, making it highly valuable for the government when charging someone with a crime.¹²⁰ Thus, it is important to afford this information the highest level of protection.

Because social media is a newer phenomenon, most courts have yet to address the issue of obtaining non-content data, which can include time and location information from a social media platform. In In re Application of the United States of America for an Order Pursuant to 18 U.S.C. § 2703(d), a magistrate judge ordered Twitter¹²¹ to turn over information
pertaining to multiple subscribers; this information included “records
of user activity . . . including the date [and] time” as well as
“non-content information associated with the contents of any communication . . . [including] IP addresses.”¹²² The Virginia district court held that because § 2703(d) requires the government to show only “reasonable grounds” that the records sought are relevant and material to an ongoing criminal investigation, and because the third-party doctrine applies to IP address information, the court order was valid.¹²³ The court differentiated IP addresses from beeper monitoring because IP addresses are shared with all internet routers when a user accesses Twitter, while tracking a beeper allowed the government to monitor inside a private residence, which was not otherwise open for visual surveillance.¹²⁴ While this case clarified what one district court believed the SCA means for IP addresses, it does not help to clarify how the SCA applies to exact location information such as the metadata embedded in Facebook, Instagram, and Snapchat posts.

However, courts have addressed the issue of whether obtaining location information from a wireless carrier constitutes a search under the Fourth Amendment. In Carpenter, the Court held that a court order obtained under § 2703(d) was not a permissible means of acquiring a defendant’s historical cell-site location information (“CSLI”) from a wireless carrier.¹²⁵ The Court found that individuals have a reasonable expectation of privacy in their physical location, and when the government accessed CSLI from the wireless carriers, it violated the defendant’s reasonable expectation of privacy.¹²⁶ As a result, the Court held that the government “must generally obtain a warrant supported by probable cause” before acquiring records containing location information.¹²⁷

Because the SCA was intended to extend Fourth Amendment rights to online communications, it might be acceptable to infer that obtaining location information from social media platforms would also require obtaining a warrant supported by probable cause. However, the Carpenter Court articulated that its decision was “narrow” and that it does not “address other business records that might incidentally reveal location information,”¹²⁸ which means that the metadata contained in the photos and videos posted on social media may not require the government to obtain a warrant, which could compromise people’s privacy rights. As Justice Sotomayor pointed out in her concurrence in Jones, “it may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy” in the information they disclose online.¹²⁹ “This approach is ill suited to the digital age, in which people reveal a great deal of information about themselves to third parties in the course of carrying out mundane tasks.”¹³⁰ Justice Sotomayor is right: in the digital age, individuals post a wealth of information online that they expect—as a result of their privacy settings—to be visible only to those they choose. Thus, it is time to reconsider the notion that revealing this information to third-party social media platforms means that the government should be able to easily obtain their locational information because there is no “reasonable expectation of privacy.”¹³¹

2. Challenges in Applying SCA Non-Content Data Disclosure to Stories

Stories provide users with the unique opportunity to create information that can qualify as both content and non-content data at the same time. When an individual posts their Story online, they are able to add “stickers,” which can indicate to those viewing the Story the exact location of the individual and the date and time the Story was posted, among other things. Thus, when a user posts a location in their social media Story, it actually appears as part of a graphic. In this sense, it would appear to be content because it is part of the image. On the other hand, since it is a location, Instagram will likely also collect that information separately from the content. It would then appear that, in this situation, the location information would be both content and non-content data at the same time; how then should a court determine whether a subpoena, court order, or warrant is required to compel the information from Instagram? Unfortunately, this is unclear under the current statutory framework of the SCA.

Former CIA agent Michael Morell admits that “[t]here’s a lot of content in metadata” and that “[t]here’s not a sharp difference between metadata and content . . . It’s more of a continuum.”¹³² If even the government accepts that it is difficult to distinguish between content and non-content data, then the SCA should not be differentiating between the two and allowing weaker protections for non-content data when, in fact, it may reveal information just as sensitive as content. Because the SCA was created prior to the creation of social media, it does not account for the overlap in the types of information that can be obtained from non-content and content data. This is another reason why the SCA needs to be rewritten: to clarify and remove the ambiguity of how sensitive non-content information can be disclosed.

V. REVISING THE STORED COMMUNICATIONS ACT

A. Requiring Warrants for All Compelled Content Disclosures

While the SCA provides some protections for private communications on ISPs, the statute needs to be updated and better tailored so that it is applicable to all the various nuances of modern technologies. Currently, the strongest protections are afforded to unretrieved emails and other temporarily stored files that are 180 days old or less.¹³³ All other communications can be more easily obtained with a subpoena combined with prior notice.¹³⁴ Under the Federal Rules of Criminal Procedure, a subpoena “may order the witness to produce any books, papers, documents, data, or other objects the subpoena designates.”¹³⁵ This is even less protective of an individual’s right to privacy than having to obtain a court order, which requires that the “governmental entity offers specific and articulable facts showing that there are reasonable grounds to believe that the contents of a[n] . . . electronic communication . . . are relevant and material to an ongoing criminal investigation.”¹³⁶ To obtain a warrant, on the other hand, there must be “probable cause to search for and seize a person or property.”¹³⁷ This places a heavier burden on the government and thus ensures that social media users are not losing their right to privacy without stringent protections, which should be the goal of any such legislation.

Because the line between defining a social media platform as either an ECS provider or an RCS provider is so unclear, applying existing laws can lead to variable results that negatively impact users’ privacy rights. As previously discussed, under the SCA, the same ISP can be treated as an ECS for some functions, but an RCS for others; this leaves users with inconsistencies in the treatment of their personal communications, which can infringe on their privacy. Importantly, whether a social media platform is characterized as an ECS or an RCS has a direct impact on the stringency of the procedures that law enforcement must follow to obtain the content. Further, although the SCA does not specifically differentiate between public and private social media accounts, because the SCA was only intended to cover private communications, it inadvertently creates counterintuitive privacy protections. For example, in Crispin, the court held that opened private messages on Facebook and MySpace were covered by RCS rules, while ECS rules covered restricted wall posts and comments.¹³⁸ Effectively, this meant that wall posts and comments, which can arguably be seen by all of an individual user’s friends, were afforded greater protections than private messages, which are typically only seen by the sender and the intended recipient. This is counterintuitive because it means that less private communications receive greater protection than more private communications.

Consequently, there is a clear need for Congress to reform the SCA now, and as a first step, require warrants for all communications, regardless of whether an ISP is characterized as an RCS or ECS.¹³⁹ Warrants provide the strongest protection for social media users, and when it comes to individual liberties, the government has an obligation to preserve these liberties with the broadest legal protections possible.¹⁴⁰ This is especially important considering the case law, which argues that individuals have a right to be protected under the SCA if they took steps to protect their content.¹⁴¹ By requiring warrants for the disclosure of all social media communications, the SCA would be able to provide the strongest statutory framework to protect users’ privacy and prevent the unjust use of their social media content against them in criminal court.

B. Removing the Differentiation Between RCS and ECS

The previously highlighted variability and liability in characterizing social media platforms as RCS providers in some instances and ECS providers in others has become even more problematic with the recent emergence of social media Stories. If Stories are analogized to emails or private messages—because the user posts the Story with the intention that others will see it and it will be gone shortly after the message is read—they would be governed by ECS rules, similar to the private messages in Crispin.¹⁴² Alternatively, Stories considered analogous to YouTube videos—because they are stored for only a limited number of people to view—would be governed by RCS rules.¹⁴³ The courts have yet to address whether Stories should be governed by ECS or RCS rules, but there are arguments for both sides because Stories do not fit neatly into either category.

Because the SCA was not created to accommodate these newer technologies, it would be more effective to revise the SCA categories rather than attempting to fit new technologies into the existing categories. Because social media platforms offer various functions that involve both message transmissions and electronic storage, the language of the SCA needs to be amended to eliminate the distinction between RCS and ECS altogether. Orin Kerr suggested doing this by identifying that the SCA applies only to “network service providers,” which would encapsulate the current definitions of ECS and RCS and then apply the SCA rules to different types of files held by the network service providers.¹⁴⁴ This would alleviate the difficulty of determining which rules apply to social media providers in different situations and would further clarify privacy rights for users by establishing when and how their content is protected. Importantly, this would also provide consistency and give users a better understanding of their rights online, which may, in turn, influence what information they choose to post on social media—especially if they know it could later be used against them in a criminal case. Without this clarity, social media users do not know whether their content is protected and what steps they need to take to protect their private communications, which may, consequently, have a “chilling effect”¹⁴⁵ on their conduct.

C. Requiring Warrants for All Compelled Non-Content Data Disclosures

As technology has grown and evolved, the distinction between content and non-content data has continued to blur. This is particularly true when individuals include the date, time, and location of their posts in the actual post or Story. When Facebook, Instagram, and Snapchat collect that information, it becomes non-content data, some of which can be disclosed pursuant to only a subpoena, and some of which requires either a court order or a warrant. One way to address this issue would be to require warrants for all compelled disclosures of non-content data. This is in line with the suggestion to require warrants for all compelled disclosures of content.

By requiring warrants for compelled disclosures of non-content data, criminal investigators would then have to show probable cause before obtaining the information, which is the highest standard available. In Carpenter, the Court acknowledged that individuals have a reasonable expectation of privacy regarding their physical location.¹⁴⁶ Unlike cell-site records, social media platforms do not collect information on users every time their phone pings a cell tower. Instead, locations are collected when individuals post to social media. Therefore, it is currently unclear whether location information would always be protected by a warrant under the SCA.¹⁴⁷

While it is true that some non-content data records reveal more than others, advances in metadata analysis have shown that assembling disparate pieces of metadata can lead to larger discoveries. Thus, although one might argue that it would be better to specify which types of records require a subpoena, which require a court order, and which require a warrant, this practice would be difficult to consistently implement.¹⁴⁸ Rewriting the SCA to guarantee that such non-content metadata is protected by the highest protection affordable would ensure that social media users are provided their First Amendment rights.

D. Removing the Distinction Between Content and Non-Content Data

Perhaps a simpler solution to this problem of differentiating between content and non-content data would be to eliminate the distinction altogether. The distinction comes from Ex parte Jackson, in which the Court held that “a distinction is to be made between different kinds of mail matter,—between what is intended to be kept free from inspection, such as letters . . . and what is open to inspection, such as . . . printed matter, purposely left in a condition to be examined.”¹⁴⁹ The Court held that mail can only be opened and examined under a warrant because otherwise it would constitute an illegal search.¹⁵⁰ Thus, content is what is “intended to be kept free from inspection,” as it is sealed away, and non-content data is what is left in the open.

When the Court first created this distinction in Ex parte Jackson, it made sense to differentiate between the information on the outside of an envelope, which could be openly seen by others, and the content that was stored within an envelope. However, trying to apply that logic to social media now no longer makes sense because the distinction between content and non-content data has become so blurred. For example, when a user posts a picture of their dog on their Instagram profile, they can include a geotagged location to where the photograph was taken. Is the location still non-content data because it is not the “substance” of the post, or is the location content because the user is using it to indicate where the picture was taken and, therefore, it is part of the description? If the latter were true, it would then arguably be content.

If the same information can be considered both content and non-content, it does not make sense to allow law enforcement to obtain the same information with lesser protections solely because they can argue that it is non-content data. Eliminating the distinction between non-content and content data would remove the uncertainty and enable social media users to be confident that all aspects of their posts would be protected.

CONCLUSION

The Ninth Circuit had it right when it said, “until Congress brings the laws in line with modern technology, protection of the Internet and websites such as [social media platforms] will remain a confusing and uncertain area of the law.”¹⁵¹ Social media platforms, as a whole, do not fit nicely into the existing ECS and RCS categories that Congress created when drafting the SCA in 1986. Some functions of social media platforms lead to the platform being treated as an ECS, while other functions lead to the platform being treated as an RCS. In other instances, it is difficult to determine whether a specific function indicates that the social media platform is acting as an ECS or an RCS. As a result, the SCA can be inconsistently applied to disclosures of social media content. Most importantly, certain functions on social media are arbitrarily afforded stricter protections than others, solely because of how they are inconsistently categorized under the current SCA. The rationale for affording communications greater protections when they are classified as an ECS that is 180 days old or less versus the fewer protections afforded to an ECS that is more than 180 days old or as an RCS is unclear. As a result of these arbitrary distinctions, law enforcement has an easier time searching an individual’s private social media, which may only require a subpoena or court order, than it would going through someone’s diary, which requires a warrant.

Further complicating the application of the SCA to social media today is the fact that in the age of social media, it is becoming more difficult to distinguish content from non-content data. When Congress drafted the SCA, it attempted to apply the Fourth Amendment to online communications and therefore made a distinction between content and non-content data; however, the difference between what constitutes content—analogous to what is contained inside an envelope—and non-content—analogous to what is on the outside of an envelope—in the digital context has become difficult to discern.¹⁵² Courts have also considered the third-party doctrine when determining what information could be obtained with a subpoena, reasoning that because the information had been disclosed to a third party, the user had no reasonable expectation of privacy. However, social media users disclose a variety of personal information when signing up for an account, often including, at a minimum, their name, birthdate, and email address, and their posts include lots of additional metadata. The privacy of these data is critical to define because they can be used by law enforcement to piece together where an individual was at the time they posted to social media or where an individual was when the content they posted was retrieved. Whether this very sensitive information should require a warrant or a lesser means to be retrieved by law enforcement is not currently clearly defined in the SCA.

The ECPA—which includes the SCA—was enacted to protect citizens from having their electronic communications intercepted without the proper authorization, but these protections need to change in response to evolving communication technologies. This legislation was intended to extend Fourth Amendment protections to new technologies, but because social media technologies have evolved so rapidly since 1986, the SCA no longer truly affords the intended protections. For citizens to be protected against unreasonable searches of their digital media, Congress needs to restructure the existing legislation to properly address how communication technologies have evolved over the past thirty-six years. Not only can one social media platform function as both an ECS and an RCS provider under the current SCA definitions, but it is now also difficult to determine whether a specific social media function, such as Stories, which has properties of both, should be governed by ECS or RCS rules. Further, there is now duplication of content and non-content data, making it difficult to clearly differentiate them and ensure that all of this personal information is being adequately protected under the SCA.

To ensure the protection of constitutional privacy rights and prevent private social media communications from being unfairly used against their creators in court, Congress should require that all compelled disclosures be governed by the same rules as the Fourth Amendment; that is, it should require that there be a warrant and “probable cause.”¹⁵³ If all compelled disclosures were to require a warrant, then equal protections would be applied in all situations, as the standard would be consistent across physical and digital searches; this would help ensure that defendants’ due process rights were not violated. Further, because the distinctions between an ECS and RCS, as well as content and non-content data, are no longer appropriate, it would be advantageous for Congress to revise the SCA to better align with modern technologies by drawing the necessary delineations based on the functions being used, not on the specific type of provider. This way, the SCA would not only better apply to modern technology, but it would hopefully also better apply to future emerging technologies.

96 S. Cal. L. Rev. 707

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Victoria M. Allen*

* Executive Senior Editor, Southern California Law Review, Volume 96; J.D. Candidate 2023, University of Southern California Gould School of Law; M.S. Clinical Research Methods 2020, Fordham University; B.A. Psychology 2015, New York University. My thanks to my parents, Marlene and Lee Allen, and Jennifer Guillen for their input and support throughout the note-writing process. I would also like to thank my Note advisor, Professor Eileen Decker, for her guidance, and the members of the Southern California Law Review for their hard work and thoughtful suggestions.

Battle of the Opinions: Conflicting Interpretations of False Opinions and the Falsity Standard Under the False Claims Act

July 2023July 2023Thitipong Mongkolrattanothai*

Congress has let loose a posse of ad hoc deputies to uncover and prosecute frauds against the government . . . . [Bad actors] may prefer the dignity of being chased only by the regular troops; if so, they must seek relief from Congress.¹

INTRODUCTION

What most people probably do not realize is that approximately ten percent of all government spending is lost to fraud, which amounts to hundreds of billions of dollars annually.² It should be of no surprise then that public attitudes toward government spending are mixed.³ With the recent COVID-19 pandemic, government spending and the number of fraudulent schemes have both reached unprecedented levels.⁴ This alone is quite alarming from a policy perspective. Furthermore, in combatting this widespread fraud, the government has had to consider an important legal issue, which also happens to be a philosophical concern that permeates life and introduces uncertainty into the legal system.

The distinction between fact and opinion seems quite obvious, but there is more to this dichotomy than meets the eye. Most individuals intuitively understand that facts have an objective basis in reality whereas opinions are merely one’s own subjective interpretation of some matter. It follows that facts can be proven or disproven using an objective metric and that facts can reinforce or contradict any given claim. But what about opinions? Can they be “true” or “false” in the same sense? Can the substance of their truth be invalidated by other opinions? Do opinions gain an elevated legal status if they inevitably result in life-or-death consequences for another individual?

The circuit courts have recently grappled with these difficult questions in the context of Medicare-related claims under the False Claims Act (“FCA”), a civil anti-fraud statute.⁵ To prevail on an FCA claim, plaintiffs must prove, inter alia, falsity; that is, the defendant made a false claim for government payment.⁶ The FCA, in its current iteration, does not provide guidance on the standard for proving falsity.⁷ Normally, this would not present an issue because “absent other indication, ‘Congress intends to incorporate the well-settled meaning of the common-law terms it uses.’ ”⁸ However, claims for government payment or reimbursement are sometimes based only on a subject matter expert’s evaluation. This is particularly true in the medical field, where doctors are required to treat patients using their clinical judgments.⁹ Thus, proving falsity in these cases necessarily entails disproving expert opinion. Given the subjective nature of opinions, common-law developments have not been uniform, and circuit courts have entrenched themselves on different sides of the aisle.¹⁰

On one side are circuit courts that believe that the FCA requires proof of an “objective falsehood.”¹¹ This seems to be the traditional interpretation, with many courts at the district and appellate levels dismissing plaintiffs’ claims when they failed to establish that a defendant’s representation was objectively false.¹² Most recently, the Eleventh Circuit, in United States v. AseraCare, Inc., considered when the hospice provider certifications regarding a patient’s “terminally ill” status can be considered false under the FCA.¹³ In its holding, the court determined that claims cannot be false based on “a reasonable disagreement between medical experts.”¹⁴

Approximately six months after the Eleventh Circuit’s ruling, the Third Circuit, in United States v. Care Alternatives, explicitly rejected the objective falsity standard in favor of a subjective falsity standard, whereby expert testimony challenging a physician’s judgment can be adequate evidence of falsity.¹⁵ The Ninth Circuit seemingly followed suit in Winter ex rel. United States v. Gardens Regional Hospital & Medical Center, Inc. when it proclaimed that a party stating an FCA claim does not need to plead an objective falsehood.¹⁶ The defendants in both cases petitioned the Supreme Court for writs of certiorari; unfortunately, on February 22, 2021, the Court rejected the petitions without comment, leaving the question unaddressed and prolonging the circuit split.¹⁷

This Note explores the aforementioned circuit split and scrutinizes the decisions under various frameworks given the statutory gap regarding falsity under the FCA. In doing so, it will consider relevant common law guidance and regulations and focus on the courts’ adherence to precedent and principles. Few doctrinal analyses on the falsity element of the FCA have been conducted,¹⁸ and to my knowledge, this is the one of the first to propose that (1) the recent disagreement over objective falsity is a nontraditional three-way circuit split, and (2) the falsity standard needs to be flexible to accommodate various controlling regulations and statutes. This Note then argues that the Ninth Circuit has correctly elucidated the issue: courts should not focus on the objective or subjective falsehood standard but rather on the context and circumstances of each case.

Part I of this Note provides a foundational understanding of the FCA, the healthcare industry, and falsity in common law contexts. This includes the FCA’s legislative history, qui tam claims, statistics regarding recovery, medical decision-making, Medicare hospice benefit (“MHB”), and history of objective falsity cases. Part II discusses prior Supreme Court and appellate decisions that provide a useful framework to analyze the circuit split. Part III analyzes the three central cases that have contributed to the recent circuit split: United States v. AseraCare, Inc.,¹⁹ United States v. Care Alternatives,²⁰ and Winter ex rel. United States v. Gardens Regional Hospital and Medical Center, Inc.²¹ Part IV recommends that courts analyze falsity under the Tenth Circuit and Supreme Court’s common law test defined in United States ex rel. Polukoff v. St. Mark’s Hospital and Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund.²² Part IV also argues that FCA-intersecting statutes and regulations have impliedly allowed for both objective and subjective falsity standards to exist. Furthermore, Part IV suggests that the issue may be more efficiently addressed by the legislature than the courts and contextualizes the problem within the broader whistleblower policy debate.

I. BACKGROUND

A. The False Claims Act and Its Legislative History

Originally enacted in 1863 at the request of President Abraham Lincoln,²³ the FCA is America’s first whistleblower law and currently one of the strongest whistleblower laws in the United States.²⁴ The FCA allowed the federal government to combat widespread fraud committed by defense contractors against the Union Army during the American Civil War.²⁵ In a congressional session statement, Senator Jacob Howard noted that “shells for the use of the Army . . . have been filled not with the proper explosive materials . . . but with saw dust” and that “[a]rms have been supplied which, on examination and use, have turned out to be useless and valueless.”²⁶ The original Act contained criminal and civil penalties for wrongdoers.²⁷ But the crucial feature of the Act that allows for its effective implementation is the qui tam provision, which enables private citizens to bring suits on behalf of the government; this essentially “empower[s] . . . ordinary citizens to act as private attorneys general.”²⁸

False Claims Act and the Government’s Right to Veto Settlements of Those Actions, 47 Emory L.J. 1041, 1041 (1998). Claimants in these qui tam actions, known as the “relators,” are incentivized by the fact that they receive a portion of the recovered damages.²⁹ Relator is the term found in the FCA statute because the term whistleblower was not in use at the time of statutory enactment.³⁰ Although the two terms are synonymous, courts and parties often prefer to use the term relator.³¹ Congress believed that it was necessary to “set[] a rogue to catch a rogue” due to the resource constraints that the government would have faced if it investigated and inquired into every business dealing involving its contractors.³² Senator Howard declared that this provision was “the safest and most expeditious way I have ever discovered of bringing rouges to justice.”³³ Those convicted under the original version of the statute were liable for double the government’s damages in addition to a $2,000 penalty for each false claim.³⁴ Relators would have received fifty percent of the total damages.³⁵

Nonetheless, since its inception, the FCA has been amended by Congress several times. Given that the Act was made for the purposes of deterring fraudulent profiteers of war while rewarding those who were upstanding, it was only fitting that the statute would be abused and tested during a subsequent major conflict, World War II.³⁶ Then Attorney General Francis Biddle pursued criminal action against a host of defense contractors using the criminal provision of the FCA.³⁷ Concurrently, groups of petitioners filed civil complaints against the same contractors and undoubtedly attempted to piggyback off the government’s work in the hopes of gaining a piece of the settlement.³⁸ This parasitic exploitation of the Act did not go unnoticed, and Congress amended the FCA in 1943.³⁹ The amendment reduced the relator’s guarantee of fifty percent of recovered damages to a maximum of ten percent.⁴⁰ The recovery limit for relators was also capped at twenty-five percent in cases in which the United States did not join.⁴¹ Most importantly, Congress removed relators’ ability to file suits if “the United States, or any agency, officer or employee thereof” possessed evidence or information of the fraud.⁴² This alteration single-handedly eliminated the majority of qui tam FCA cases.⁴³

Approximately forty years later, Congress caught wind of reports of rampant fraud committed by federal contractors.⁴⁴ In 1986, the FCA experienced almost a complete reversal of the strict prohibitions which chilled qui tam cases. The “any prior government knowledge” proscription was replaced with the substantially less restrictive “public disclosure of allegations or transactions” qualification.⁴⁵ In addition, recovery for successful relators increased marginally, and liability for perpetrators of fraud increased from double damages to treble damages.⁴⁶

The most recent iteration of the FCA occurred in 2009, when Congress made a somewhat subtle amendment to the statute which limited the scope of claims encompassed by the FCA.⁴⁷ A “material to a false or fraudulent claim” element was added.⁴⁸ In essence, the wording of the prior FCA iteration allowed one of the critical elements to be met if the government simply paid or approved a fraudulent claim. The new requirement, however, adds a materiality aspect; that is, the government’s decision to pay or approve a claim must have been predicated on a falsity.

This current version of the FCA specifically penalizes, among other offenses, (1) knowingly presenting, or causing to be presented, a false or fraudulent claim for payment,⁴⁹ and (2) knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim.⁵⁰ FCA claims are broken down into the following requirements: falsity, causation, knowledge, and materiality.⁵¹ The statute provides functional definitions for knowledge but offers no guidance on the definitions of falsity.⁵²

B. The False Claims Act in the Twenty-First Century

The importance of the FCA in combatting fraud in the twenty-first century should not be underestimated. Approximately ten percent of all government spending is lost to fraud.⁵³ During fiscal year 2020, the government spent over $6 trillion dollars.⁵⁴ Accordingly, the government stands to lose hundreds of millions of dollars each year. Like cases in other areas of law, the majority of FCA cases settle or are dismissed before trial.⁵⁵ Nonetheless, the number of FCA cases and associated monetary payments have substantially amplified in recent years. More than 4,000 new cases have opened since 2015.⁵⁶ In 2020 alone, qui tam relators and the government filed 922 new FCA suits and subsequently obtained more than $2 billion dollars in recovery and settlements.⁵⁷ With the onset of the COVID-19 pandemic, the Department of Justice has already begun investigating and prosecuting the spike in COVID-19 recovery-related programs.⁵⁸ Fraud cases are more prevalent now than ever, and the FCA creates a necessary foundation with which to combat these issues.

Although historically used to uncover and deter military-based fraud against the federal government, the FCA in the current era has undergone a drastic shift, not based on the substance of law but rather due to policy shifts in healthcare law. The rapid expansion of the healthcare sector and burgeoning government programs are likely responsible for this shift.⁵⁹ Over eighty percent of fraud cases against the government are now related to healthcare.⁶⁰ Furthermore, healthcare-related FCA cases account for more recovery than FCA recovery from all other sectors combined.⁶¹

C. Medical Decision-Making and Medicare Hospice Benefits

Given that all three cases contributing to the circuit split concern Medicare-related fraud, a general discussion of fraud within the medical practice area is warranted. Fraud in the medical industry is not novel. In particular, the Federal Bureau of Investigation has noted that health care fraud causes several billions of dollars in losses each year.⁶² Although there are a variety of factors that contribute to the prevalence of health care fraud, the subjectivity inherent in medical decision-making is a prominent one.⁶³ There will almost always be another medical professional who does not agree with the course of action taken. Moreover, the medical industry is unique in that the medical opinions of physicians sometimes lack the objective proof to reinforce their actions and regulations often give deference to medical judgments.⁶⁴

The MHB presents a fitting example of a controlling statutory restriction that specifically grants physicians this deference. Due to the growing number of aging individuals enrolled in Medicare, Congress passed the MHB in 1983.⁶⁵ The MHB allows Medicare beneficiaries to forego traditional curative care in favor of electing interdisciplinary palliative treatment.⁶⁶ However, eligibility is based on a written confirmation of a “terminally ill” prognosis by a physician or medical director.⁶⁷ Terminally ill is defined as “a life expectancy of 6 months or less if the terminal illness runs its normal course.”⁶⁸ This certification must include a written narrative explaining the clinical findings and be accompanied by clinical information and other documentation.⁶⁹ Once these conditions are met, Medicare and Medicaid programs will provide payment to hospice providers for costs incurred under the Social Security Act.⁷⁰ The regulations have directly acknowledged the “uniqueness of every Medicare beneficiary” and that predicting someone’s end-of-life is not an “exact science.”⁷¹ Accordingly, certifications may be renewed by the physician for additional sixty- or ninety-day periods.⁷²

Following the MHB’s establishment, FCA cases alleging hospice fraud have increased dramatically.⁷³ This includes two of the three circuit split cases.⁷⁴ Predictably, most cases are initiated by whistleblowers in qui tam suits, as foreseen by the legislature.⁷⁵ In 2016, the MHB provided hospice care to more than one million individuals, and Medicare reimbursed over $16 billion for hospice care.⁷⁶ Moreover, unlike FCA litigation in other areas of law, FCA litigation in connection with the MHB demonstrates a unique scenario that has perplexed the courts: stratification of the FCA by a purposefully deferential statute.

D. An Undisputed Era of Objective Falsity

Objective falsity was widely considered to be the standard before the new Third and Ninth Circuit holdings challenged the status quo; a considerable number of courts, including the Third Circuit itself, have previously recognized this standard.⁷⁷ This ostensibly established standard derived from a mix of healthcare- and non-healthcare-related FCA claims,⁷⁸ which likely solidified its acceptance and promulgated its spread across jurisdictions. Some of these cases were decided as early as 2005⁷⁹ and are briefly explained below to illustrate the formerly unified landscape which has been shattered by the circuit split.⁸⁰

In United States v. Prabhu, the District of Nevada held:

To establish falsity under the FCA, it is not sufficient to demonstrate that the person’s practices could have or should have been better. Instead, plaintiff must demonstrate that an objective gap exists between what the defendant represented and what the Defendant would have stated had the Defendant told the truth.⁸¹

The government alleged that the physician’s claims for pulmonary rehabilitation and simple pulmonary stress tests were false due to insufficient documentation.⁸² The government interpreted the American Medical Association’s guidance publication to require specific measurements and a written report for a simple stress test.⁸³ However, the record indicated that Medicare failed to issue specific guidance regarding the precise type of documentation needed to provide care and that there was no physician writing documentation requirement.⁸⁴ In light of these facts, the parties’ contentions, and the “general confusion” among the government and its own experts, the court believed that “reasonable persons can disagree regarding the billing requirement[]” and the physician’s documentation practices fell within “the range of reasonable medical and scientific judgment.”⁸⁵ Furthermore, the government did not establish a concrete violation of a “controlling rule, regulation, or standard” when the physician provided pulmonary rehabilitation services.⁸⁶ As a matter of law, the government failed to establish falsity, and the court granted the motion for summary judgment.⁸⁷

In United States ex rel. Wilson v. Kellogg Brown & Root, Inc., the Fourth Circuit determined that “[an] FCA relator cannot base a fraud claim on nothing more than his own interpretation of an imprecise contractual provision.”⁸⁸ The relators claimed that the defendant contractor, their former employer, falsely certified that it would uphold its contractual duties by maintaining military vehicles in “good appearance” when “it would not, and later did not, abide by those terms.”⁸⁹ The court outright rejected this assertion because “[i]t is well-established that the FCA requires proof of an objective falsehood.”⁹⁰ The court also found no evidence of this claim, as the United States government—the actual party to the contract—never expressed dissatisfaction with the contractor’s performance.⁹¹ Relying solely on their interpretation of imprecise maintenance provisions, the relators failed to state a valid falsity claim under the FCA.⁹²

In United States ex rel. Yannacopoulos v. General Dynamics, the Seventh Circuit decided that “[a] statement may be deemed ‘false’ for purposes of the False Claims Act only if the statement represents ‘an objective falsehood.’ ”⁹³ The relator contended that amendments to a contract between a company and Greece were “reverse false claims,” false statements used to conceal, avoid, or decrease an obligation to pay or transmit money or property to the government.⁹⁴ However, the relator simply relied on his interpretation of the terms of agreement without proof of any evidence.⁹⁵ As a result, the court affirmed the district court’s motion for summary judgment.⁹⁶

In United States ex rel. Wall v. Vista Hospice Care, Inc., the Northern District of Texas ruled that “[a] testifying physician’s disagreement with a certifying physician’s prediction of life expectancy is not enough to show falsity.”⁹⁷ The relator asserted, inter alia, that defendant hospice service providers improperly enrolled and sought reimbursement from Medicare and Medicaid for patients who were not eligible for hospice care.⁹⁸ Although the relator presented a medical expert’s testimony that ninety percent of the records were ineligible for certification, it was not sufficiently linked to the corporate scheme to falsify records and thus did not create a triable “fact issue as to falsity.”⁹⁹

II. BUILDING AN ANALYTICAL FRAMEWORK

Important cases have discussed how opinions relate to the FCA, when opinions may be considered false in the context of medical necessity, and the two theories of falsity.¹⁰⁰ The totality of these cases provides an analytical framework with which to analyze the circuit split and are discussed below:

A. When Opinions Can Be False

As a prelude to the circuit split, the Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund addressed the issue of when opinions can be false.¹⁰¹ The case involved Omnicare, the largest pharmacy services provider for nursing home residents in the United States, and its filed registration statement with the Securities and Exchange Commission (“SEC”).¹⁰² The filing included two statements of opinion. First, the company believed that its “contract[ual] arrangements with other healthcare providers, . . . pharmaceutical suppliers and . . . pharmacy practices [were] in compliance with applicable federal and state laws.”¹⁰³ Second, the company believed that its “contracts with pharmaceutical manufacturers [were] legally and economically valid arrangements that [brought] value to the healthcare system and the patients.”¹⁰⁴ The plaintiffs, pension funds that purchased Omnicare stock, alleged that the company’s statements were materially false based on later lawsuit filings from the government stating that the company received payments from drug manufacturers in violation of anti-kickback laws.¹⁰⁵ In addition to claims of materially false representations regarding legal compliance, the complaint maintained that none of the company’s officers and directors possessed reasonable ground to believe that the opinions offered were truthful and complete.¹⁰⁶ In support of this, plaintiffs pointed to the fact that one of Omnicare’s attorneys previously warned of a contract that carried a heightened risk of liability under anti-kickback laws.¹⁰⁷

The district court granted Omnicare’s motion to dismiss on the grounds that the statements about a company’s belief regarding its legal compliance are only actionable if those who made the statements knew they were untrue at the time.¹⁰⁸ The court thus concluded that the plaintiffs’ complaint failed to meet the standard because there were no allegations stating that Omnicare’s officers knew they were violating the law.¹⁰⁹

On appeal, the Sixth Circuit reversed the district court’s holding.¹¹⁰ The court acknowledged that the opinions related to legal compliance, rather than “hard facts.”¹¹¹ Nonetheless, the court proceeded to explain that the plaintiffs simply had to allege that the opinion was objectively false and were not required to contend that an Omnicare employee “disbelieved [the opinion] at the time it was expressed.”¹¹²

After granting certiorari, the Supreme Court addressed the following two issues: (1) when an opinion may constitute a factual misstatement; and (2) when an opinion may be considered misleading by the omission of discrete factual representations.¹¹³ On the first issue, the Court held that sincere statements of pure opinion are not “ ‘untrue statement[s] of material fact,’ regardless [of] whether an investor can ultimately prove the belief [was] wrong.”¹¹⁴ Relying on common law principles, the Court illustrated two examples that provided exceptions to when statements of pure opinion can be false.¹¹⁵ These exceptions include when (1) the speaker does not actually hold the opinion, or (2) the opinion contains a false, embedded fact.¹¹⁶ On the second issue, the Court ruled that opinions may be misleading when a registration statement omits material facts about the issuer’s inquiry into or knowledge concerning a statement of opinion and if those facts conflict with what a reasonable investor would take from the statement itself.¹¹⁷ The Court does note, however, that an opinion is not necessarily misleading if it omits facts that “cut[] the other way” and analyses into this inquiry should always consider context.¹¹⁸

Thus, the Supreme Court effectively recognized that individuals make false opinions when (1) they do not actually hold the opinion; (2) the opinion contains a false, embedded fact; (3) they are aware of facts that would preclude such an opinion; or (4) they are not aware of any facts that would justify the opinion.¹¹⁹

B. Opinions Analysis in the Context of Medical Necessity

In United States v. Paulus, the Sixth Circuit conducted an Omnicare-based analysis in the context of a medical case without explicitly referencing the case.¹²⁰ In Paulus, a cardiologist was criminally prosecuted for health care fraud and false statements.¹²¹ Specifically, the cardiologist exaggerated the extent of arterial blockages in his patients in order to perform and bill for medically unnecessary coronary stenting procedures.¹²² The crux of this case depended on the interpretation of angiograms, with the plaintiff using the testimony of nine doctors to testify that the level of blockage differed from what the defendant had reported.¹²³ The defendant responded by pointing out the subjectivity of angiogram interpretation, including data from multiple studies.¹²⁴

During trial at the district court level, the jury convicted the cardiologist of healthcare fraud and making false statements.¹²⁵ However, the court directed a judgment of acquittal and subsequently ordered a new trial.¹²⁶ The court reasoned that the degree of arterial blockage was a matter of “subjective medical opinion,” and thus the cardiologist’s angiogram interpretations “could be neither false nor fraudulent.”¹²⁷

On appeal, the Sixth Circuit reversed because it believed that clinical judgments can trigger FCA liability when an individual (1) asserts an opinion they do not truly believe, or (2) has knowledge of facts that contradict their opinion.¹²⁸ The court reasoned that “[t]he degree of stenosis is a fact capable of proof or disproof.”¹²⁹ The court then likened the deliberate inflation of blockages on an angiogram to the telling of a lie, which infers the commission of a fraud when paired with the billing of a more expensive procedure.¹³⁰ In its analysis, the court essentially utilized the first two false opinion definitions described in Omnicare: (1) not honestly holding an opinion, and (2) an opinion containing a false, embedded fact.¹³¹ The court thought it to be clear that angiograms are facts and implied that angiogram interpretations are obviously not facts “capable of confirmation or contradiction.”¹³² Accordingly, the court pivoted to the idea that the cardiologist did not give an opinion but instead misrepresented facts by lying about the results.¹³³ Thus, the court reversed the trial court’s judgment and reinstated the jury’s verdict.¹³⁴

C. Factual Versus Legal Falsity

In United States ex rel. Polukoff v. St. Mark’s Hospital, the Tenth Circuit identified and distinguished between two types of falsities, factual and legal falsity, prior to conducting a falsity analysis under the FCA.¹³⁵ In this case, a relator, the former co-worker of the defendant, sued the defendant-cardiologist as well as two hospitals under the FCA.¹³⁶ The complaint alleged that the cardiologist performed thousands of medically unnecessary cardiac surgical procedures and fraudulently certified otherwise to receive reimbursement under the Medicare Act.¹³⁷ Central to this claim was the Centers for Medicare and Medicaid Services’ (“CMS”) “reasonable and necessary” requirement for surgeries.¹³⁸ Industry guidelines indicated when performing surgeries would be appropriate for specific types of patients, which the cardiologist allegedly ignored.¹³⁹ Instead, he misrepresented on the certifications that he had performed them in accordance with the guidelines.¹⁴⁰ Thus, this representation was false under the FCA.¹⁴¹

The district court granted the defendants’ motion to dismiss. The court reasoned that “Medicare does not require compliance with an industry standard as a prerequisite to payment. Thus, requesting payment . . . does not amount to a ‘fraudulent scheme.’ ”¹⁴² Moreover, “because [o]pinions, medical judgments, and conclusions about which reasonable minds may differ cannot be false for the purposes of an FCA claim,” the relator failed to state a claim under the FCA.¹⁴³

On appeal, the Tenth Circuit reversed and remanded because it fundamentally disagreed with the district court’s narrow interpretation of the FCA’s reach.¹⁴⁴ The court read the FCA broadly so as to encompass “claims for medically unnecessary treatment.”¹⁴⁵ Another reason the court presented was “that an allegedly false statement constitut[ing] the speaker’s opinion does not disqualify it from forming the basis of FCA liability.”¹⁴⁶ To support this reasoning, the court looked to its bifurcated understanding of falsity in a previously decided case.¹⁴⁷ The court held that “false” may indicate factually false or legally false.¹⁴⁸ Factually false claims are express claims that are not based in fact (for example, seeking payment for services that were never provided or submitting incorrect information), whereas legally false claims cover instances where an individual certifies compliance with applicable legal requirements when, in fact, the individual knew there was no compliance.¹⁴⁹ Since the relator’s complaint alleged non-compliance with Medicare regulations, the court’s straightforward, logical analysis of legal falsity was as follows: (1) “[a] Medicare claim is false if it is not reimbursable;” (2) “a Medicare claim is not reimbursable if the services provided were not medically necessary;” and (3) in order for a claim to be medically necessary, “it must meet the government’s definition of ‘reasonable and necessary,’ as found in the Medicare Program Integrity Manual.”¹⁵⁰ The procedures, certified by the cardiologist, did not comport with the government’s definition of the phrase, and thus the certifications were false under the FCA.¹⁵¹

III. ANALYSIS

While most articles have divided the circuit split issue between objective and subjective falsity,¹⁵² further inspection demonstrates that the circuit split is not binary. All three cases in the circuit split look to the statutory language of the FCA.¹⁵³ The Eleventh and Third Circuit interpretations directly conflict, as they arrived at an objective and subjective falsity standard, respectively, after contemplating the same regulations surrounding the MHB.¹⁵⁴ The Ninth Circuit case did not involve the MHB but instead considered the statutory language of Medicare programs and the CMS’s definition of “reasonable and necessary.”¹⁵⁵ Although the Ninth Circuit fundamentally employed the same analysis as the Eleventh Circuit, it explicitly rejected the Eleventh Circuit’s objective falsity standard and implicitly adopted the subjective falsity standard.¹⁵⁶ Thus, three distinct standards have emerged from the case law.

First, this Section will discuss the Eleventh Circuit’s analysis and decision in United States v. AseraCare, Inc., which establishes a higher burden of proof at the summary judgment stage for relators and the government. Second, this Section will examine the Third Circuit’s holding in United States v. Care Alternatives and why it chose to critique and explicitly depart from the Eleventh Circuit’s adoption of the objective falsity standard. Third, this Section will consider the Ninth Circuit’s more even-handed analysis in Winter ex rel. United States v. Gardens Regional Hospital & Medical Center, Inc. and why it refused to adopt a rigid falsity standard.

A. United States v. AseraCare, Inc.

In AseraCare, the government intervened in a qui tam suit filed by three former AseraCare employees against AseraCare, claiming that the hospice provider had a practice of knowingly submitting unsubstantiated Medicare claims in violation of the FCA.¹⁵⁷ These reckless business practices allegedly enabled the provider “to admit, and receive reimbursement for, patients who were not eligible for [MHB],” resulting in the “misspending” of millions of Medicare dollars.¹⁵⁸ The court noted this case as falling under the “false certification” theory of FCA liability (in other words, when there is a false implication of having complied with a legal requirement).¹⁵⁹

To establish its case, the government first identified over 2,000 hospice patients for whom AseraCare had billed Medicare.¹⁶⁰ The government then narrowed this population to a subset of 223 patients and retained a physician to directly review these patients’ medical records and clinical histories.¹⁶¹ Acting as the government’s primary expert witness, the physician, relying on his own clinical judgment, opined that 123 out of 223 patients were ineligible for hospice benefits at the time AseraCare received reimbursements from Medicare.¹⁶² Critically, the government’s case was substantially weakened when its expert witness conceded that he was unable to affirmatively say whether AseraCare’s medical expert, or any other physician, was wrong about the accuracy of the prognoses at issue.¹⁶³ Furthermore, the expert witness (1) never testified that no reasonable doctor could have concluded that the patients were terminally ill at the time of certification, and (2) changed his opinion concerning the eligibility of certain patients over the course of the proceeding.¹⁶⁴

A brief recitation of the procedural posture and history is warranted so as to provide context for the appellate court’s analysis. Following discovery and analysis of relevant patient records, AseraCare moved for summary judgment on the grounds that the government failed to adduce evidence of falsity under the FCA.¹⁶⁵ In its motion, AseraCare specifically asked the district court to apply the “reasonable doctor” standard; that is, “the government must show that a reasonable physician applying his or her clinical judgment could not have held the opinion that the patient at issue was terminally ill at the time of certification.”¹⁶⁶ Even though the district court found this standard convincing, it declined to apply it and denied the motion.¹⁶⁷ The district court then bifurcated the trial into two phases, one on the falsity element and the second on the remaining FCA elements.¹⁶⁸ This limited the government’s ability to rebut AseraCare’s expert testimony during the first phase.¹⁶⁹ Nonetheless, the dueling expert testimony was a critical component of trial. The government’s expert and AseraCare’s expert diverged in how they approached analysis of patient life expectancy.¹⁷⁰ The government’s expert used a “checkbox approach” to assess terminal illness by comparing patient records to medical guidelines.¹⁷¹ By contrast, AseraCare’s expert did not formulaically apply guidance and used a more “holistic” approach.¹⁷² At the trial’s conclusion, the district court provided the following jury instruction: “A claim is ‘false’ if it is an assertion that is untrue when made or used. Claims to Medicare may be false if the provider seeks payment, or reimbursement, for health care that is not reimbursable.”¹⁷³ Thus, the jury had to decide which expert was more persuasive, with the less persuasive opinion being deemed a false opinion.¹⁷⁴ In its answers to special interrogatories, the jury found that AseraCare had submitted false claims for 104 of the 123 patients at issue.¹⁷⁵

Following this partial verdict, AseraCare moved for judgment as a matter of law, contending that the district court articulated an incorrect legal standard in its instruction.¹⁷⁶ The court agreed that it had committed reversible error in its instruction and ordered a new trial.¹⁷⁷ The court believed it should have advised the jury of two “key points of law,” which were not previously acknowledged: (1) “the FCA’s falsity element requires proof of an objective falsehood”; and (2) “a mere difference of opinion between physicians, without more, is not enough to show falsity.”¹⁷⁸ The court then considered summary judgment sua sponte and concluded that the government could not prove the falsity element as a matter of law because the government “presented no evidence of an objective falsehood for any of the patients at issue.”¹⁷⁹ Summary judgment was granted in AseraCare’s favor, and the government appealed.¹⁸⁰

On appeal, the government’s core argument was that competing expert testimony regarding patients’ medical records supporting a terminal illness prognoses was enough to raise a factual question for the jury.¹⁸¹ In contrast, AseraCare contended that the determinative inquiry was whether the certifying physician exercised genuine clinical judgment.¹⁸² If so, the accuracy of such judgment cannot be false as a factual matter.¹⁸³ The Eleventh Circuit immediately recognized that “the standard for falsity [was] in the context of the Medicare hospice benefit, where the controlling condition of reimbursement is a matter of clinical judgment.”¹⁸⁴ Accordingly, the Eleventh Circuit was tasked with considering how the FCA intersects the scope of hospice eligibility requirements.¹⁸⁵

The Eleventh Circuit initially evaluated whether the falsity claim was a legal or factual falsity.¹⁸⁶ The court concluded that the case concerned a legal falsity claim because “[t]here is no allegation that the hospice services AseraCare provided were not rendered as claimed.”¹⁸⁷ Then, the court identified the following two “representations,” which may form the legal basis for an FCA claim: (1) the “representation by a physician to AseraCare that the patient is terminally ill in the physician’s clinical judgment”; and (2) the “representation by AseraCare to Medicare that such clinical judgment has been obtained and that the patient is therefore eligible.”¹⁸⁸ The court found that the government’s allegations only referred to the first representation.¹⁸⁹ The first representation, however, made it such that the government’s FCA case rested entirely on the question of when a “physician’s clinical judgment regarding a patient’s prognosis [can] be deemed ‘false.’ ”¹⁹⁰

To answer this question, the court heavily relied on applicable regulations and the text of the MHB statute due to the “dearth of controlling case law.”¹⁹¹ The court looked to the plain meaning of the entire statue and regulations instead of focusing on specific words.¹⁹² The general requirements were that (1) hospice providers must submit a certification claim for patients, (2) the certification must be in writing, (3) the certification must be based on clinical judgment, (4) clinical information and other documentation supporting the prognoses must accompany the certification, and (5) the reimbursement must be for “reasonable and necessary” payments for managing terminally ill patients.¹⁹³ The court subsequently pointed out that several requirements allow for a certain degree of subjectivity.¹⁹⁴ For example, submission of claims must be individually tailored to each patient’s clinical circumstances.¹⁹⁵ Check boxes and standard language used for all patients are prohibited.¹⁹⁶ Furthermore, the subjective and objective medical findings of each patient should be considered.¹⁹⁷ The court believed that this built-in flexibility was fully intended by Congress and that Congress would have used different language if it wanted a more rigid and objective standard.¹⁹⁸ Thus, the court’s role was not to establish a more objective standard against the implied language of the statute and regulations.¹⁹⁹

Although the court emphasized that the regulations intended for MHB eligibility were to simply be predicated on the procurement of a physician’s clinical judgment, the government sought to elevate the standard such that the underlying information must support, “as a factual matter,” the certification.²⁰⁰ The court disagreed with this framing of the eligibility requirements, stating that it is not consistent with the text or design of the law.²⁰¹ The relevant regulations merely require that clinical information and other documentation supporting the medical prognosis accompany the certification and be filed in the medical record.²⁰² The court therefore determined that supporting documentation does not have to, standing alone, prove the validity of a physician’s initial clinical judgment.²⁰³ As long as the physician’s interpretation is reasonable, certification requirements are met.²⁰⁴

The Eleventh Circuit ultimately concurred with the district court’s holding that a mere difference of medical opinion alone is insufficient to establish falsity under the FCA; however, it also ruled that the district court had gone too far in sua sponte granting summary judgment.²⁰⁵ The court recognized that reasonable doctors may disagree on a patient’s condition and that neither one could be wrong.²⁰⁶ As a result, “[a] properly formed and sincerely held clinical judgment is not untrue even if a different physician later contends that the judgment is wrong.”²⁰⁷ To reach this conclusion, the court relied on and cited to the Supreme Court’s decision in Omnicare.²⁰⁸ Adhering to Omnicare’s general principles, the court acknowledged that opinions regarding terminal illness can be deemed objectively false in various circumstances.²⁰⁹ The court finally deferred to the legislature or CMS after the government expressed concerns that an objective falsity standard “will likely prove more challenging for an FCA plaintiff.”²¹⁰

B. United States v. Care Alternatives

Like the AseraCare case, Care Alternatives involved qui tam relators who were former employees of a hospice provider, Care Alternatives.²¹¹ The relators alleged that Care Alternatives admitted ineligible MHB patients and directed its employees to alter the patients’ certifications to reflect eligibility.²¹² During discovery, both sides produced extensive evidence, which included dueling expert opinions.²¹³ The relators’ expert examined nearly fifty patient records and opined that thirty-five percent of patients’ records did not support a certification of need for hospice care.²¹⁴ The expert went even further and testified that “any reasonable physician would have reached the conclusion he reached.”²¹⁵ Care Alternatives’ expert disagreed and believed that a reasonable physician would have found all of the patients to be hospice-eligible.²¹⁶

At the district court level, Care Alternatives moved for summary judgment based on the finding that the relators could not satisfy the four elements of the FCA claim.²¹⁷ In particular, Care Alternatives claimed that relators had not produced sufficient evidence of falsity.²¹⁸ The court granted Care Alternatives’ motion “based solely on failure to show falsity.”²¹⁹ To reach its conclusion, the court looked to the holding in AseraCare, finding that a “mere difference of opinion between physicians, without more, is not enough to show falsity.”²²⁰ The relators appealed.²²¹ Thus, the question before the appellate court was whether a reimbursement claim may be considered false under the FCA simply on the basis of conflicting medical expert testimony.²²²

In reviewing the appeal, the Third Circuit began its analysis by discussing the MHB.²²³ For the most part, the court agreed with the Eleventh Circuit’s interpretation in AseraCare of the certification requirements for Medicare reimbursement of terminally ill patients.²²⁴ Similar to the AseraCare court, the Third Circuit even noted that “making a prognosis is not an exact science.”²²⁵ However, departing from the Eleventh Circuit’s reading, the court emphasized that this “inexactitude does not negate the fact that there must be a clinical basis for a certification.”²²⁶

Where the Third Circuit truly departed from the Eleventh Circuit was in its common law analysis of the terms “false” or “fraudulent” under the FCA.²²⁷ Due to the lack of statutory guidance on the meaning of falsity, the court identified, from its prior cases and the Tenth Circuit’s rationale in Polukoff,²²⁸ the following two ways in which a claim may be false: (1) “factually, when the facts contained within the claim are untrue”; and (2) “legally, when the claimant . . . falsely certifies that it has complied with a statute or regulation the compliance with which is a condition for government payment.”²²⁹ As applied to the case before the court, Care Alternatives allegedly made incorrect certifications, which qualified the claim under the legal falsity theory.²³⁰ The court reasoned that the objective falsity standard is at odds with the concept of legal falsity, which is the appropriate standard, and by adopting the prior standard, the district court limited its analysis to factual falsity.²³¹ The court further held that the district court’s objective falsity standard conflated the knowledge and falsity elements of an FCA claim.²³² Thus, by rejecting the objective falsity standard, the court sought to separate the knowledge and falsity analyses to comply with the text of the statute.²³³ Under a legal falsity standard, disagreement between experts as to a physician’s certification may be evidence of falsity under the FCA.²³⁴

The Third Circuit also considered and rejected the district court’s bright-line rule that a doctor’s clinical judgment cannot be “false.”²³⁵ In doing so, the court acutely relied on the Paulus opinion.²³⁶ Underlying the district court’s decision was the premise that medical opinions are subjective and cannot be false.²³⁷ The Third Circuit sided with the Sixth Circuit’s emphasis on the fact that medical “opinions are not, and have never been, completely insulated from scrutiny.”²³⁸ The Paulus holding suggested that good faith medical opinions are not punishable but dishonest medical opinions may trigger liability for fraud.²³⁹ Consequently, in line with its legal falsity analysis, the court believed that whether an individual acted in good faith or misrepresented a fact, thereby committing fraud, was “exclusively” a question for the jury.²⁴⁰

The Third Circuit then went on to explain why it chose to depart from the Eleventh Circuit’s standard. The first issue that the court highlighted was how the Eleventh Circuit framed the falsity question.²⁴¹ The court interpreted its sibling court as having construed the clinical information and documentation requirement of the MHB in an overly narrow fashion when it concluded that the supporting documentation requirement is only designed to address the mandate that there be a medical basis for certification instead of considering “whether the clinical information and other documentation accompanying a certification of terminal illness support[s] . . . the physician’s certification.”²⁴² Therefore, this limited the inquiry to whether there was sufficient evidence of “the accuracy of the physician’s clinical judgment regarding terminality,” which the court understood to exclude legal falsity and only include factual falsity.²⁴³ The court posited that under the legal falsity theory, conflicting medical opinion is relevant evidence of the clinical information and documentation requirements.²⁴⁴ Furthermore, the court characterized the AseraCare court as coming to the conclusion that clinical judgments cannot be untrue, which it fundamentally disagreed with based on its interpretation of common-law definitions.²⁴⁵

Ultimately, the Third Circuit had a drastically different breakdown of the falsity issue as compared to the Eleventh Circuit because it based its entire analysis upon the distinction between what it understood to be factual and legal falsity.

C. Winter ex rel. United States v. Gardens Regional Hospital and Medical Center, Inc.

In Winter, the relator, a registered nurse and former director at Gardens Regional Hospital (“Gardens”), filed a qui tam FCA suit against her former employer.²⁴⁶ The procedural history of this case is relatively simple compared to those of the aforementioned cases. The relator alleged in a complaint that Gardens submitted Medicare claims falsely certifying that patients’ hospitalizations were medically necessary.²⁴⁷ In support of this claim, the relator pointed to her own after-the-fact review of admission records.²⁴⁸ Gardens moved to dismiss the complaint for failure to state a claim, which was subsequently granted by the district court.²⁴⁹ The district court asserted that to prevail on an FCA claim, plaintiffs must show that a defendant knowingly made an objectively false representation. Thus, a statement that implicates a doctor’s clinical judgment can never state an FCA claim because subjective medical opinions cannot be proven to be objectively false.²⁵⁰ The relator appealed.²⁵¹

The Ninth Circuit started its analysis by reviewing the medical necessity requirement and the FCA.²⁵² Medicare reimburses providers for inpatient hospitalization only if the expenses incurred are “reasonable and necessary.”²⁵³ CMS administers the Medicare program and has defined a reasonable and necessary service as one that “meets, but does not exceed, the patient’s medical need, and is furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition.”²⁵⁴ Similar to the MHB, the Medicare program allows doctors to form their own clinical judgment based on complex medical factors.²⁵⁵ However, the language specifically provides that factors must be documented in the medical record and the regulations consider medical necessity a question of fact.²⁵⁶ Thus, a physician’s certification has no presumptive weight in determining medical necessity and must be evaluated in the context of medical evidence.²⁵⁷ The court subsequently reasoned that the relator’s allegations fall under the “false certification” theory of FCA liability.²⁵⁸ Since medical necessity is a condition of payment, every Medicare claim includes an express or implied certification of necessary treatment.²⁵⁹ Accordingly, claims for unnecessary treatment are false claims.²⁶⁰ The court stated that many other circuits, including the Tenth in Polukoff and Third in Care Alternatives, reached the same conclusion regarding the scope of FCA claims.²⁶¹

The Ninth Circuit then proceeded to analyze the application of opinions to the FCA by interpreting the language of the statute.²⁶² The court interpreted the FCA broadly, citing congressional intent and the Supreme Court’s refusal to “accept a rigid, restrictive reading” of the FCA.²⁶³ Due to the lack of statutory guidance on what constitutes a false or fraudulent claim, the court looked to common-law definitions.²⁶⁴ In doing so, the court referred to treatises and a number of cases, including Paulus and Omnicare, that a subjective opinion may be fraudulent if (1) it is “not honestly held,” (2) it implies the existence of nonexistent facts, (3) the speaker knows facts that would preclude such an opinion, and (4) the speaker does not know facts that justify it.²⁶⁵ The court additionally explained that the “knowing presentation of what is known to be false” does not mean “scientifically untrue.”²⁶⁶ Although a scientifically untrue statement is false, it may not be actionable if it was not made with the requisite intent.²⁶⁷ Likewise, an opinion with no basis in fact can be fraudulent if expressed with knowledge.²⁶⁸

The court considered and outright rejected the request from Gardens and amici curiae for the court to hold that the FCA requires plaintiffs to plead an objective falsehood.²⁶⁹ The court stated that the plain language of the FCA “does not distinguish between ‘objective’ and ‘subjective’ falsity or carve out an exception for clinical judgments and opinions.”²⁷⁰ The court further noted that policy arguments cannot supersede the “clear” statutory text and it could not engraft that requirement onto the statute.²⁷¹ The court therefore held that the FCA does not require plaintiffs to plead an objective falsehood.²⁷²

Interestingly, the court claimed that the Eleventh Circuit’s decision in AseraCare was not “directly to the contrary.”²⁷³ First, the court noted that the Eleventh Circuit, notwithstanding the language about objective falsehoods, did not consider all subjective statements to be incapable of falsity.²⁷⁴ Second, the court believed that the Eleventh Circuit narrowly confined the objective falsity standard to the MHB, which granted deference to physician judgment.²⁷⁵ In the court’s view, its sister circuit did not necessarily apply the standard to a physician’s certification of medical necessity by (1) explicitly distinguishing Polukoff, and (2) explaining that the less-deferential medical necessity requirement remained an important safeguard to its reading of the MHB eligibility framework.²⁷⁶

Given that litigation was at the motion to dismiss stage, the court ruled that the relator’s complaint plausibly alleged false certifications of medical necessity.²⁷⁷ The relator (1) showed correlations between the spike in admissions and timing of the scheme; (2) presented both irregular admission trends and admission statistics; (3) alleged a specific number of false claims, each in great detail; and (4) set forth anecdotal evidence which supported both an inference of knowledge and falsity.²⁷⁸ The court also plainly dismissed Gardens’ argument and the district court’s characterization of the relator’s allegation as simply being her own competing opinion.²⁷⁹ First, according to the court, opinions can establish falsity.²⁸⁰ Second, the court believed that even if the relator’s own evaluations of the medical record were discounted, there were enough facts alleged to suffice the plausibility of fraud.²⁸¹

In sum, while the Ninth Circuit disagreed with the Eleventh Circuit about the objective falsehood standard, it applied the same common law rule regarding when an opinion can be false for the purposes of an FCA claim.

IV. DISCUSSION

AseraCare, Care Alternatives, and Winter highlight a growing tension between the different approaches and standards within the falsity element of the FCA. The hospice context has been the battleground between the Third and Eleventh Circuits, which have attempted to solve the issue of whether dueling expert testimonies, without more, create a triable issue of fact for the jury.²⁸² Nonetheless, it is quite evident that the imposition of a rigid falsity standard lends itself to application in FCA claims which have no basis in hospice care certifications, as seen in Winter.²⁸³ Furthermore, how courts analyze false opinions according to laws and regulations as well as the intent behind them is of great importance because it forms the conceptual foundation for constructing a proper framework and reaching the most legally sound conclusion. The following questions naturally follow: How should courts analyze false opinions and the falsity standard? And is the objective or subjective falsity standard the more appropriate reading of the FCA statute?

Section IV.A argues that Polukoff and Omnicare provide a comprehensive framework for the courts to categorize types of FCA claims and, if the alleged conduct includes opinions, whether the opinion is false. Section IV.B argues that, given the reach of the FCA, objective and subjective falsity standards are appropriate depending on the applicable regulations. Section IV.C suggests that, as a practical matter based on policy concerns, Congress amend the FCA to create special definitions and provisions for professional medical judgment. Finally, Section IV.D addresses the competing policy trade-off of over-incentivization to file false claims and contextualizes the arguments made in this Note to the broader whistleblower policy debate.

A. The Polukoff–Omnicare Common Law Test

Unlike the Care Alternatives court’s factual and legal falsity breakdown, the AseraCare and Winter courts utilized the Polukoff–Omnicare common law framework to reach their conclusions; this is the proper way to analyze the falsity element of the FCA. First, the Polukoff–Omnicare framework fully encompasses all types of FCA claims. The Polukoff court divides FCA claims into factual and legal claims.²⁸⁴ The Omnicare decision sets out the four different ways in which an opinion may be false: (1) the actor does not actually hold the opinion; (2) the opinion contains a false, embedded fact; (3) the actor is aware of facts that would preclude such an opinion; or (4) the actor is not aware of any facts that would justify the opinion.²⁸⁵ The first step in any FCA claim determination should be the Polukoffanalysis. Courts can properly distinguish the entire universe of FCA claims into two categories and decide where the claim before them fits. Moreover, if legal claims are not implicated, the standard automatically defaults to an objective falsehood standard.²⁸⁶ Courts should subsequently consider whether a legal, FCA claim fits into one of the four Omnicare false opinion types. Regardless of whether courts adopt an objective or subjective falsehood standard, the Omnicareframework remains pertinent because it defines the totality of false opinions. Adhering to this analytical procedure will not only ensure that common law precedent has been properly followed but also unofficially standardize the framework across circuits. As discussed above, the Eleventh and Ninth Circuits identically and correctly applied this framework.²⁸⁷

Second, while the Third Circuit correctly relied on Paulus to identify that opinions can be false, it fully ignored when opinions can be false according to the common law; it would not have made this fatal error if it used the Omnicare framework. The Paulus court specifically stated that “opinions may trigger liability for fraud when they are not honestly held by their maker,or when the speaker knows of facts that are fundamentally incompatible with his opinion.”²⁸⁸ The “when” conjunctions in the statement are critical to understanding the common law reasoning behind false opinions. However, the Third Circuit seemingly disregarded the dependent clauses, so that it could adduce some misconstrued holding from another circuit to support its conclusion regarding subjective falsity. In a similarly reductive fashion, the Third Circuit mischaracterized the Eleventh Circuit’s holding in AseraCare to state that clinical judgments are never false.²⁸⁹ The primary reason the government was unable to successfully make its case in AseraCare was that, in lieu of available evidence, it solely used an expert witness who was unable to claim that no reasonable physician could have reached the contested conclusions.²⁹⁰ The Third Circuit, however, conflated the lack of evidence with the Eleventh Circuit’s framing of the issue. In reality, the Eleventh Circuit noted that opinions can be false, as it directly followed and cited to the Omnicare decision.²⁹¹ The Third Circuit invoked the common law but never identified any evidence to suggest a false opinion under the Omnicare categories. The Third Circuit completely discounted the Supreme Court’s principle that, as a general rule, sincere statements of pure opinion are not “untrue statement[s] of material fact” even if the speakers are ultimately wrong.²⁹² Thus, if the certifying physicians in Care Alternatives truly believed that their patients were terminally ill, the Third Circuit, without conducting a proper Omnicare-based analysis, would have controverted existing Supreme Court precedent.

Third, the Third Circuit’s entire analysis is based on its understanding of factual and legal falsity, but the court fundamentally misconstrued the relationship between objective falsity and the factual/legal falsity distinction in the Polukoff holding. The Polukoff decision indicated that factual falsity refers to express claims which are entirely based on fact, whereas legal falsity refers to any claim where legal requirements were not met.²⁹³ Accordingly, a subset of legal falsity claims includes claims where the legal requirement was not met due to negligent, reckless, or deceitful conduct, which implicates some extent of knowledge or lack thereof (in other words, implied claims).²⁹⁴ The Polukoff court simply demarcated the types of FCA claims which could reasonably be brought by plaintiffs. The Third Circuit, however, proclaimed that objective falsity is incompatible with legal falsity.²⁹⁵ The underlying assumption with this assertion is that objective facts may only be employed to challenge facts and not opinions. On a theoretical level, this line of logic is problematic because facts are objectively more concrete than opinions. Accordingly, as a matter of law, facts take precedence over opinions in the hierarchy of proof. Although “pure” opinions cannot be rebutted with facts,²⁹⁶ not all opinions are “pure,” especially those of medical professionals. Generally, professional opinions have some foundation in fact, which essentially places them on a spectrum between fact and opinion. This hybridization makes professional opinions susceptible to dispute by both facts and opinions. Thus, relegating the objective falsity standard to factual claims of falsity severely misses the extent of the standard’s applicability. On a practical level, the Supreme Court in Omnicare codified these observations into common law.²⁹⁷ For example, an opinion which contains a false, embedded fact is considered a false opinion.²⁹⁸ False opinions naturally fall under the Third Circuit’s legal falsity umbrella. The Supreme Court stated that if the embedded fact is proven to be false, the opinion is also false.²⁹⁹ This type of false opinion clearly allows for rebuttal with a contradictory factual finding, so an objective falsity standard is not necessarily improper when applied to legal falsity claims.

Finally, the Third Circuit improperly accused the Eleventh Circuit of wrongfully conflating the FCA’s knowledge and falsity elements; in fact, the Third Circuit was the court that conflated these elements. In AseraCare and Winter, the Eleventh and Ninth Circuits acknowledged that some evidence applies to proving both knowledge and falsity.³⁰⁰ This necessarily makes it difficult to analyze these elements separately. Even the district court in Care Alternativesrealized this when it rejected the relators’ claim because they failed to establish evidence of the physicians’ underlying knowledge (such that any physician lied or actually believed that the certified patients were not hospice-eligible).³⁰¹ The Third Circuit made clear that “in our Court, findings of falsity and scienter must be independent from one another for purposes of FCA liability.”³⁰² This is a misunderstanding of what common law principles apply. The fundamental distinction between an honest opinion and an opinion made in bad faith is the prerequisite knowledge used in forming the opinion. Therefore, when determining whether an opinion is false, the common law specifically looks to the speaker’s intent, which necessarily implies a knowledge requirement. The Third Circuit clearly subverted Omnicare by ruling that an after-the-fact reasonable disagreement between physicians can show falsity. Furthermore, as a practical concern, the Third Circuit’s falsity and knowledge separation could substantially increase the risk that the juror’s perception becomes tainted. The district court in AseraCare bifurcated its trial because it feared that evidence related to the knowledge element, particularly AseraCare’s flawed admissions policies and certification procedures to determine if a patient was terminally ill, would be inferred by the jury to satisfy the falsity element.³⁰³ This did, in fact, confuse the jury’s analysis of the threshold falsity question.³⁰⁴ Conceptually, general corporate practices have no bearing on whether a particular hospice claim is false if the medical evidence points to the fact that the patient was terminally ill. Accordingly, the Third Circuit’s interpretation of the knowledge and falsity elements potentially writes the falsity element out of the FCA statute by allowing evidence of knowledge to cloud a jury’s perception of falsity.

B. Courts May Reasonably Reach Different Falsity Standards

The objective and subjective falsehood standards are not necessarily diametrically opposed in the broad legal sense. In remaining true to Congress’s intent, courts have used the FCA “to reach all types of fraud, without qualification, that might result in financial loss to the Government.”³⁰⁵ In doing so, the FCA has been interpreted alongside other applicable laws and regulations since its inception. Prior to the recent medical FCA cases, this was not an issue because fraud was never predicated solely on subjective professional opinions without a tangible associated fact.³⁰⁶ In Polukoff terms, the entire realm of FCA claims were factual claims and non-opinion legal claims. Due to the factual basis for these types of claims, courts had to adopt an objective falsehood standard, which slowly resulted in uniformity among jurisdictions. However, as noted by the Winter court, the Supreme Court “ ‘has consistently refused to accept a rigid, restrictive reading’ of the FCA.”³⁰⁷ The same reasoning can be extrapolated to the falsity standard to the extent that it is an element of an FCA claim. Interactions between the FCA and applicable laws and regulations thus do not inherently allow for a universal falsity standard but rather the possibility of different falsity standards to be adopted in specific circumstances. This flexibility in the legal interpretation of falsity is also the better policy approach that allows for a more robust legal system.

The objective falsehood standard is an appropriate legal interpretation based on CMS’s guidelines and the MHB’s purposeful deference to physician judgment. The MHB and CMS’s guidelines for hospice eligibility repeatedly reference the subjectivity involved in determining terminal illness.³⁰⁸ First, as a general matter, Congress has not amended the hospice eligibility criteria.³⁰⁹ Second, the MHB specifically prohibits the use of check boxes and requires a narrative explanation of the diagnosis.³¹⁰ Third, the MHB allows for unlimited recertifications.³¹¹ Fourth, the MHB requires physicians to consider subjective and objective medical findings.³¹² Finally, the MHB explicitly declared that predicting life expectancy is not an exact science.³¹³ Taken in totality, these factors show the imprecise nature and complexity of hospice certifications. Thus, based on the lack of any statistical or medical measurement for longevity, medical professionals have been afforded the utmost deference by Congress. If courts were to adopt a subjective falsity standard with regards to hospice care, FCA trials would devolve into a meaningless battle of expert opinions, neither of which may be false. This is exactly what happened at the district level in AseraCare.³¹⁴ The objective falsity standard is more sensible and provides a safeguard to trivial FCA claims based on falsity. Congress’s intention was not to allow “rogues” to take a doctor to court based on their certification that a patient had six more months to live simply because they found another doctor who believed the same patient had a remaining life expectancy of six and a half months. By adopting an objective standard, juries are not forced to become a “third doctor” who simply evaluates purely medical judgments.

At the same time, the subjective falsehood standard is an appropriate legal interpretation based on Medicare regulations and CMS’s definition of “reasonable and necessary.” Medicare reimbursements for inpatient hospitalizations are contingent on the provided services being reasonable and necessary, as defined by the CMS.³¹⁵ Similar to the MHB, Medicare regulations demand that doctors evaluate complex medical factors to form their clinical judgment. In contrast to the MHB, however, Medicare regulations do not give physicians “unfettered discretion.”³¹⁶ The regulations explicitly defer to the accepted standards of medical practice but provide no presumptive weight to a physician’s certification.³¹⁷ Expert opinions must be analyzed in the context of medical evidence.³¹⁸ An objective falsehood standard is not necessarily incompatible with Medicare hospitalization claims but would be redundant. Since the Medicare program already requires medical evidence for initial certifications, facts are presumably available in every case. The focal point of these cases surrounds the interpretation of these facts. Therefore, medical expert testimony offers more value than just competing medical theory. Testimony effectively provides valuable, logical medical inferences and contextualizes the interpretation of medical data, which is substantially less subjective than end-of-life determinations. Due to the fact that judgments are less rooted in medical theory and more rooted in medical practice, juries are able to make more substantiated findings, as they did so in Paulus and Polukoff. Accordingly, the subjective falsity standard is the more appropriate standard under these circumstances.

C. Legislative Action for the FCA

Given that rejections of the objective falsity standard have occurred exclusively in medical-related FCA claims, the unique challenges associated with the medical realm may be more efficiently handled through legislation. Judicial interpretations of falsity have been effective in filling the statutory gap in the FCA until the current circuit split, where false opinions in the medical context have divided the common law landscape. The crux of the issue is that the medical sector is quite anomalous when compared to other areas of practice, but courts cannot simply apply a medical-specific standard.³¹⁹ As a general matter, courts do not derogate legal standards based on the field of application (for instance, the financial sector does not receive a different legal standard from the technology sector simply because the fields are different).³²⁰ Common law seeks to prescribe a set of legal rules and principles that can be consistently applied.³²¹ Absent some countervailing statute or regulation, the common law is standardized across all fields.³²² The countervailing statute in AseraCare and Care Alternatives was the MHB. The countervailing regulation in Winter was Medicare. However, the plain language of the MHB statute and Medicare regulations grants different degrees of deference to doctors. As a result, it is unclear how courts can adopt one standard without subverting congressional deference to doctors. If courts adopt a bright-line objective falsity standard, they will comply with the MHB and protect medical professionals from frivolous FCA suits but impose a higher standard of proof for plaintiffs, which will prevent valid suits involving false Medicare certifications from getting through trial. On the other hand, if courts adopt a subjective falsity standard, false Medicare certification claims could be handled appropriately through FCA litigation while frivolous claims will be brought against physicians who genuinely certify hospice care, which neither the FCA nor the MHB protects against. As a result, while the Supreme Court can attempt to resolve the circuit split in the future, the resolution may not be desirable as the adopted standard may lack the nuance needed to accommodate both medical laws and regulations.

From a policy perspective, it is also in Congress’s interest to clarify how and when physicians should be held accountable for their clinical opinions. The legislative branch, beholden to the people, creates laws while the judiciary promotes fairness and justice through the interpretation of such laws. Congress originally wrote the MHB and authorized Medicare programs after appreciating the host of factors that go into complex medical decision-making. The objective was to strike a balance between accountability and scrutiny within different medical settings. It is simply not the courts’ job to engage in judicial policymaking that overrides congressional intent. Courts cannot require stricter or looser scrutiny of physician judgments as they see fit and would effectively be doing so by adopting a bright-line standard. Moreover, the majority of FCA claims for the past several years have been from the medical field.³²³ Based on this consistent trend and America’s aging population, the composition of FCA claims for the foreseeable future will remain dominated by healthcare-related claims. Thus, it is imperative that Congress provide explicit, meaningful guidance on this issue.

D. Policy Considerations for the FCA

Although this Note primarily focuses on the fraud deterrence aspect of the FCA, a comprehensive discussion would not be complete without addressing the competing policy tradeoff—over-incentivization of whistleblowers to file false or frivolous FCA claims. In 2020, the relator share awards totaled over $300 million with only 672 qui tam claims filed.³²⁴ Although the potential for monetary gain differs for each case, it can be extrapolated from this data that whistleblowers can win hundreds of thousands, if not millions, of dollars if they prevail on a claim. This is a powerful incentive for unscrupulous individuals hoping to profit from this well-intentioned statute. A legal falsity standard certainly eases their ability to do so. However, the hurdles that would have to be overcome by such individuals virtually eliminate the risk of undeserving payouts. First, after the filing of a qui tam complaint, the government is required to investigate the allegations and can move to dismiss if the findings show that the relator has no grounds for the complaint.³²⁵ Even if the government does not move to dismiss, approximately 52% of FCA cases are resolved at this stage by agreed dismissal or settlement.³²⁶ Second, at the motion-to-dismiss stage, the complaint may fail as a matter of law due to lack of specificity. Third, at the summary judgment stage, the relator must show a genuine dispute of material fact. In the event that a legal falsity standard is applied, the relator may not have any issues convincing the court. Nonetheless, nearly 80% of FCA cases were resolved before the summary judgment stage.³²⁷ Thus, it is statistically unlikely for a relator, much less a dishonest one, to even reach this stage. Finally, the relator must prevail at trial. But more than 99% of FCA cases settle or are dismissed before reaching trial due to the high stakes nature of FCA litigation.³²⁸ Consequently, the systemic barriers and costly litigation process should sufficiently dissuade fraudulent rogues and assuage any concerns regarding overburdening of the judicial system.

In addition, while the extracted case law from the described cases does not provide an exactly useful model for FCA litigation in non-medical practice areas, the proposed non-duality falsity standard concept can be utilized to address the broader whistleblower policy debate. Whistleblower laws typically attempt to strike a balance between protecting the rights of whistleblowers and respecting an employer’s rights to remove personnel.³²⁹ Lawmakers must therefore decide who whistleblowers can report information to while still receiving sufficient protections from employer retaliation.³³⁰ This has been the subject of scholarly debate and criticism for years, which still rages on today.³³¹ In January 2021, the Anti-Money Laundering Act was enacted, which expanded the recipient list for employees of financial services institutions.³³² However, the Act still imposes a rigid report recipient requirement.³³³ Similar to how a rigid falsity standard fails to account for the plethora of intersecting laws and regulations, an unduly restrictive recipient list likely cannot match the diversity of situations that whistleblowers find themselves in. It is evident that the issue of rigid standards permeates the whistleblower legal arena. Moving forward, open-ended or flexible standards may provide the nuance necessary to usher in a new era of comprehensive whistleblower reforms.

CONCLUSION

AseraCare, Care Alternatives, and Winter are the first cases to adopt the objective or subjective falsehood standard for FCA claims in the context of medical certifications based on “false opinions.” The specific question at issue is whether dueling expert opinion, without more, creates a triable issue of fact for the jury. The objective falsity standard posits that conflicting opinions are not enough whereas the subjective falsity standard believes contradictory judgments are sufficient. The practical result of courts adopting the subjective standard is that relators and the government are more likely to survive the pleading and summary judgment stage by simply providing dueling expert opinion. An objective falsity standard makes it more difficult for plaintiffs to prevail on an FCA claim. The Eleventh Circuit in AseraCare adopted the objective standard after analyzing the plain language of the FCA and MHB. The Third Circuit in Care Alternatives arrived at the subjective standard after analyzing the same statutes. The Ninth Circuit in Winter implicitly agreed with the subjective standard after it considered the FCA and Medicare regulations. Superficially, there is a clear circuit split over the falsity standard. The two standards are at odds, but each one is applicable in different medical settings based on Congress’s intent and the plain meaning of the governing statutes and regulations. More importantly, however, is not what standard each circuit adopted but how the courts arrived at their conclusions.

While there are countless examples of FCA certifications requiring a medical opinion or exercise of discretion, the above trifecta of cases perfectly contrasts how courts should and should not invoke common law. The Eleventh and Ninth Circuits, while reaching different conclusions, employed the same common law framework and principles in their analyses. They primarily relied on (1) the Tenth Circuit’s Polukoff holding to distinguish factual and legal falsity, and (2) the Supreme Court’s Omnicare decision discussing when opinions may be deemed false. Conversely, the Third Circuit stated that it looked to common law for guidance while (1) misconstruing case law, (2) ignoring common law precedent, and (3) failing to apply common law in its lackluster analysis. Unlike the Third Circuit, courts should utilize the Polukoff–Omnicare framework because it categorically constricts the universe of FCA claims into a logical, comprehensive framework with which to analyze false opinions.

The Supreme Court missed an opportunity to at least resolve the analytical differences between the circuits when it denied certiorari for Care Alternatives and Winter. As a matter of policy, the decision to adopt or reject a rigid falsity standard will have wide-ranging consequences, and it should be up to the legislature to insulate or scrutinize physicians for their certifications. Aside from adjudging these exercises of discretion as true or false, the Supreme Court has the responsibility of correcting circuits when they falter in their representation of common law principles. Omnicare is arguably the most relevant common law precedent in terms of providing an analytical framework for determining false opinions. Thus, the Third Circuit’s disregard of Omnicare sets an extremely disruptive example for other courts. Moving forward, the Supreme Court should announce that courts must abide by Omnicare when engaging in an FCA analysis involving opinions.

APPENDIX: COURTS ADOPTING OR REJECTING OBJECTIVE FALSITY

Court^a	Case Name	Year	Type of Legal Claim
Adopting Courts
Tenth Circuit	United States ex rel. Morton v. A Plus Benefits, Inc.^b	2005	Medicaid
District of Nevada	United States v. Prabhu^c	2006	Medicare
Fourth Circuit	United States ex rel. Wilson v. Kellogg Brown & Root, Inc.^d	2008	Contract
Seventh Circuit	United States ex rel.Yannacopoulos v. General Dynamics^e	2011	Contract
Third Circuit	United States ex rel. Hill v. University of Medicine & Dentistry of New Jersey^f	2011	Research Grant
Third Circuit	United States ex rel. Thomas v. Siemens AG^g	2014	Contract
Northern District of Texas	United States ex rel. Wall v. Vista Hospice Care, Inc.^h	2016	Medicare/Medicaid
Eleventh Circuit	United States v. AseraCare, Inc.ⁱ	2019	Medicare
Rejecting Courts
Third Circuit	United States v. Care Alternatives^j	2020	Medicare/Medicaid
Ninth Circuit	Winter ex rel. United States v. Gardens Regional Hospital & Medical Center, Inc.^k	2020	Medicare
Notes: This list merely demonstrates the uniformity of the legal landscape prior to the Third and Ninth Circuit decisions in 2020 and is not intended to show every single jurisdiction that has ruled on the issue. ^aOf note, the Third Circuit originally adopted the objective falsity standard in 2011, reaffirmed the standard in 2014, and rejected the standard in 2020. This is quite peculiar, as it is the only Circuit that has switched its opinion on the issue. The Tenth Circuit adopted the objective falsity standard in 2005 but moved away from that decision in United States ex rel. Polukoff v. St. Mark’s Hospital. However, the Tenth Circuit has not explicitly embraced a subjective falsity standard. Sources: ^bUnited States ex rel. Morton v. A Plus Benefits, Inc., 139 F. App’x. 980 (10th Cir. 2005). ^cUnited States v. Prabhu, 442 F. Supp. 2d 1008 (D. Nev. 2006). ^dUnited States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370 (4th Cir. 2008). ^eUnited States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818 (7th Cir. 2011). ^fUnited States ex rel. Hill v. Univ. of Med. & Dentistry of New Jersey, 448 F. App’x 314 (3d Cir. 2011). ^gUnited States ex rel. Thomas v. Siemens AG, 593 F. App’x 139 (3d Cir. 2014). ^hUnited States ex rel. Wall v. Vista Hospice Care, Inc., No. 3:07-cv-00604-M, 2016 U.S. Dist. LEXIS 80160 (N.D. Tex. June 20, 2016). ⁱUnited States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019). ^jUnited States v. Care Alts., 952 F.3d 89 (3d Cir. 2020), cert. denied, 141 S. Ct. 1371 (2021). ^kWinter ex rel. United States v. Gardens Reg’l Hosp. & Med. Ctr., Inc., 953 F.3d 1108 (9th Cir. 2020), cert. denied sub nom. RollinsNelson LTC Corp. v. United States ex rel. Winters, 141 S. Ct. 1380 (2021).

96 S. Cal. L. Rev. 665

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Thitipong Mongkolrattanothai*

* Executive Postscript Editor, Southern California Law Review, Volume 96; J.D. Candidate, 2023 University of Southern California, Gould School of Law; M.P.H. Global Epidemiology 2018, Emory University Rollins School of Public Health; B.S. Integrative Biology 2016, University of Illinois at Urbana-Champaign. I would like to thank Professor Jonathan Barnett for guidance, Professor Eileen Decker for serving as my advisor, and the Southern California Law Review for excellent editorial assistance.