Vol. 97, No. 6 Archives – Southern California Law Review

Public Protest and Governmental Immunities

October 2024October 2024Timothy Zick*

This Article presents the findings of a quantitative and qualitative study of the application of qualified immunity and other governmental immunities in the context of public protest. Relying on three unique datasets of federal court decisions examining First Amendment and Fourth Amendment claims, the Article concludes that public protester plaintiffs face an array of obstacles when suing state, local, and federal officials for constitutional injuries. Quantitative findings show that protesters’ claims are frequently dismissed under qualified immunity doctrines and that plaintiffs also face strict limits on municipal liability, new restrictions on First Amendment retaliation claims, and the possible extinction of monetary actions against federal officials. Qualitatively, the study shows protesters’ rights are underdeveloped in several respects, including recognition of the right to record law enforcement and limits on law enforcement’s use of force. The study lends additional support and new urgency to calls for qualified immunity reform or repeal, as well as reconsideration of other governmental immunities. It also concludes that much more than money damages for injured plaintiffs is at stake. Lack of adequate civil remedies may significantly chill future public protest organizing and participation.

INTRODUCTION

Between January 2020 and June 2021, there were more than thirty thousand public demonstrations in the United States.¹ In what were perhaps the largest public protests in American history, an estimated fifteen to twenty-six million protesters gathered in the nation’s public streets after George Floyd’s murder.² Although the demonstrations were predominantly peaceful, state and local law enforcement used aggressive policing methods to restrict and suppress them.³ Officers beat protesters with batons, rammed them with bicycles, used dangerous crowd containment strategies, arrested protesters without probable cause, used tear gas and other “less-lethal” force against peaceful assemblies, and unlawfully arrested legal observers including members of the press.⁴ In several cities, including Portland and the District of Columbia, federal law enforcement and other agency personnel also engaged in aggressive and violent protest policing.⁵ Former President Donald Trump told state governors to “dominate” the protesters and send them to jail.⁶

Many of these law enforcement actions violated protesters’ First Amendment and Fourth Amendment rights. Protesters can sometimes obtain judicial injunctions preventing law enforcement from using such tactics in future protests.⁷ Police departments sometimes, though far too infrequently, discipline officers for violating constitutional rights and other misconduct.⁸ However, injunctive relief and departmental discipline do not compensate for the physical and emotional injuries protesters experience at the hands of aggressive and sometimes violent law enforcement officers. As Joanna Schwartz has observed, “for many people, filing a lawsuit [for damages] is the best available way to punish police when they violate the law and give police reason not to violate the law again.”⁹

Both 42 U.S.C. § 1983 (“section 1983”)¹⁰—a statute originally passed to assist the government in combating Ku Klux Klan violence in the South after the Civil War—and the Supreme Court’s decision in Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics¹¹ allow individuals to sue government officials for money damages for constitutional torts (personal injuries stemming from violations of constitutional rights). Section 1983 applies to state and local officials, while Bivens applies to federal officials. However, protesters face a daunting array of obstacles to recovering civil damages under these laws.¹² The constitutional standards that govern protesters’ underlying First Amendment and Fourth Amendment claims may offer less-than-robust substantive protection for protesters’ activities. But even with respect to some egregious violations of protesters’ constitutional rights, governments and government officials possess broad legal immunities that often prevent recovery of civil damages.

Under section 1983, unless officers violate what the Supreme Court has described as “clearly established law,” they cannot sue officials for money damages.¹³ The doctrine of “qualified immunity” shields “all but the plainly incompetent” law enforcement and other officials from liability.¹⁴ In general, plaintiffs cannot recover unless they can show that “controlling authority in their jurisdiction” or a “consensus of cases of persuasive authority” have recognized the underlying misconduct as a constitutional violation.¹⁵ Municipal employers, who have much deeper financial pockets than individual officers, cannot be held accountable unless plaintiffs can prove they adopted and enforced a “policy or custom” of violating protesters’ constitutional rights.¹⁶ Although this evidence is hard to come by, plaintiffs are required to present it as early as the pleadings stage of a lawsuit.¹⁷

In recent years, the Supreme Court has further narrowed the circumstances in which local and federal officials can be sued for civil rights violations under section 1983 and Bivens. For example, in Nieves v. Bartlett, a 2019 decision, the Court held that so long as officers have probable cause to arrest protesters for some criminal offense, however minor, they cannot pursue a First Amendment claim that the officer retaliated against them for exercising expressive rights—unless they can prove law enforcement singled them out and treated them unequally.¹⁸ With regard to Bivens suits against federal officials, the Court has assumed such claims can go forward, but has also strongly suggested they are unwarranted extensions of Bivens.¹⁹ If these claims are rejected, protesters will be barred from suing National Park Service officials, U.S. Capitol police officers, U.S. Secret Service agents, and other federal defendants for money damages in connection with protest policing.

Protesters whose constitutional rights are violated by law enforcement and other officials deserve to be compensated for their injuries. Further, as the 2020–2021 mass protests demonstrated, officials who violate First Amendment, Fourth Amendment, and other constitutional rights need to be deterred from doing so and held accountable.²⁰ To the extent protesters believe officials cannot or will not be held fully accountable for even egregious and abusive constitutional violations, they may be chilled from exercising protest-related rights.

Despite the importance of these remedial and other concerns, there has been no systematic effort to measure the effects governmental immunities have on protesters’ ability to obtain compensation for their constitutional injuries.²¹ To obtain a measure of these effects, this Article presents the findings of a unique quantitative and qualitative study. Unlike prior studies, which focused on qualified immunity across cases and contexts, this study focuses on the fate of First Amendment and Fourth Amendment claims brought by plaintiffs against state, local, and federal officials in public protest cases.²² The study is based on three datasets consisting of more than three hundred federal court decisions and four hundred claims. In addition to qualified immunity in section 1983 cases, the study examines governmental immunities in First Amendment retaliation cases and actions against federal officials. Decisions in each unique dataset were coded to assess defendants’ success in invoking immunities to defeat protesters’ damages claims. Finally, the study provides a qualitative analysis of protesters’ First Amendment and Fourth Amendment rights. This part of the study identifies the types of constitutional claims plaintiffs typically pursued in public protest cases and the substantive “law” as the Supreme Court and lower federal courts have developed it.

The study shows that individual officers had considerable success, particularly at the summary judgment stage, defeating protesters’ section 1983 claims, and municipal defendants had even greater success. Defendants also enjoyed substantial success defeating First Amendment “retaliation” claims under the standard adopted in Nieves, often based on arrests for minor offenses. Owing to the Supreme Court’s recent skeptical pronouncements regarding Bivens claims, the study concludes that defendants are likely to defeat future First Amendment and Fourth Amendment damages claims against federal defendants. While some of the study’s quantitative findings differ from those in prior studies, in general, the results support criticisms of qualified immunity and other immunity doctrines.²³ As applied in public protest cases, qualified immunity does not serve the policy goals the Supreme Court has ascribed to the doctrine, including providing a means of redress for constitutional injuries, deterrence of unlawful conduct, and shielding officers from the burdens of discovery.²⁴ Further, the qualitative portions of the study demonstrates the relatively weak rights protester plaintiffs possess and supports the criticism that qualified immunity doctrine has resulted in a lack of development of substantive rights.²⁵ Based on these findings, the study concludes that without repeal or reform of governmental immunities, public protest itself may be significantly imperiled.

From here, the Article proceeds in four parts. Part I describes the First Amendment and Fourth Amendment rights at stake in the public protest context and the governmental immunities that affect recovery of monetary damages for rights violations. Part II describes the study design and elaborates further on the content of the three unique datasets. Part III presents the study’s quantitative and qualitative findings regarding qualified immunity, municipal liability, First Amendment retaliation claims, and lawsuits against federal officials under Bivens. Part IV proposes several reforms and actions to strengthen protesters’ rights and remedies.

I. PROTESTER INJURIES AND GOVERNMENTAL IMMUNITIES

Protesters who are injured during a public demonstration or other event can bring various legal claims against those responsible for their injuries. The focus in this study is on alleged violations of First Amendment and Fourth Amendment rights by government officials and entities, which are the most common claims pursued by injured protesters. A variety of officials and governmental entities participate in policing public protests. Possible defendants in civil rights lawsuits include state and local law enforcement, U.S. Secret Service, National Park Service, and other federal agency officials, and state or local governments. Each type of defendant can rely on robust governmental immunities. Separately and in combination, these immunities are obstacles for protesters seeking compensation for constitutional injuries.

A. Protesters’ Rights and Remedies

Protesters can experience a variety of constitutional injuries when they participate in demonstrations and other public events. Although other rights may come into play, the two principal federal constitutional protections available to protesters are the First Amendment, which protects speech and peaceable assembly, and the Fourth Amendment, which generally prohibits unreasonable searches and seizures.²⁶

Protesters may be injured owing to a wide array of First Amendment violations.²⁷ For example, officials may unlawfully deny protesters access to “public forums,” including public parks, streets, and sidewalks, where they have recognized rights to speak and assemble.²⁸ Governments may rely on invalid content-based speech regulations or enforce unlawful speech zones and other regulations that unduly restrict speech and assembly.²⁹ Law enforcement officers may also unlawfully retaliate against protesters for exercising their First Amendment rights, confiscate their signs and displays, prohibit the recording of police officers at public demonstrations, and engage in abusive protest policing methods.³⁰

Protesters may also suffer physical and other injuries stemming from Fourth Amendment violations.³¹ They may be subject to arrest without probable cause or unlawfully detained.³² Protesters may also be injured when police officers use excessive force, including physical force used during an arrest, handcuffing and other types of restraints, and use of less-lethal munitions including tear gas, pepper spray, and projectiles.³³ These violations may cause physical and psychological injuries.

There are two general types of remedies protesters can pursue when they are the victims of these or other constitutional torts. They can seek injunctive relief against government actions and policies they allege violate the U.S. Constitution (or state constitutional provisions). For example, peaceful protesters expelled from a public park can seek a court order mandating they and others be allowed to protest there in the future. Or protesters could sue for an injunction preventing police from firing tear gas into crowds of peaceful protesters.³⁴

Enjoining current or future First Amendment or Fourth Amendment violations is an important remedy. However, injunctive relief is forward-looking and declaratory. It does not compensate protesters for physical and other injuries sustained during a demonstration or other protest event because of constitutionally tortious conduct.

The other kind of relief protesters can seek in the event of constitutional violations is an award for monetary damages against individual officials and their government employers. Both section 1983 and the Supreme Court’s decision in Bivens allow individuals to sue government officials for money damages for constitutional torts (personal injuries stemming from violations of constitutional rights).³⁵ Section 1983 applies to state and local officials, while Bivens applies to federal officials. Both section 1983 and Bivens protect against deprivations of rights secured by the U.S. Constitution. Section 1983 explicitly authorizes such claims, while Bivens implies such claims from constitutional rights provisions.

Civil rights suits for money damages are a critically important means of vindicating constitutional rights. Owing to the infrequency of prosecutions brought against law enforcement for civil rights violations and the reluctance of police departments to investigate and punish their own, a lawsuit for damages may be the only way for a protester who has been injured to obtain some measure of justice.³⁶ Monetary relief compensates injured protesters for physical, economic, and other kinds of tangible harm. It can also have deterrent effects in terms of individual officer actions and municipal policies. As in other legal contexts, damages awarded for constitutional violations are intended to make injured parties whole. The damages include not only monetary and out-of-pocket expenditures, but also recovery for pain, suffering, and emotional distress. When plaintiffs prevail in federal civil rights lawsuits, they are also entitled to recover attorneys’ fees.³⁷

Although my study focuses on federal constitutional claims, protesters can sue under state civil rights laws and precedents, which generally adopt similar qualified immunity restrictions in cases involving violation of state constitutional rights. They can also bring state common law personal injury claims including assault, battery, false arrest, damages to property, and infliction of emotional distress.

Protesters’ remedial menu sounds expansive. However, as this study confirms, protesters’ claims for monetary damages against government officials and municipal entities are substantially constrained by an offsetting menu of liability-limiting immunities and related doctrines. As a result, protesters injured while engaged in lawful and peaceful expressive activities often find it difficult or impossible to hold government officials accountable for their actions.

B. Section 1983 and “Qualified Immunity”

Government officials may be entitled to “qualified immunity” in section 1983 and Bivens lawsuits. Qualified immunity is a judicially created doctrine that shields government officials from being held personally liable for constitutional violations.³⁸ When government officials are sued, qualified immunity functions as an affirmative defense they can raise, barring damages even if they committed unlawful acts. (Qualified immunity is not, however, a defense to claims for injunctive relief.) As a general matter, officials enjoy broad legal immunity from civil rights claims under this doctrine. As the Supreme Court has observed, qualified immunity “provides ample protection to all but the plainly incompetent or those who knowingly violate the law.”³⁹

Historically, under Supreme Court precedents, whether a defendant was entitled to qualified immunity turned on the subjective “good faith” of the official who committed the alleged violation.⁴⁰ In 1982, however, the Supreme Court replaced that subjective standard with a new test framed in “objective terms.”⁴¹ Under the new test, officials are personally immune from monetary liability “even if they act in bad faith, so long as there is no prior court decision with nearly identical facts.”⁴² As the Court has explained, as long as their conduct “does not violate clearly established statutory or constitutional rights of which a reasonable person would have known,” police officers and other officials are not liable for money damages under section 1983.⁴³

The Court has made clear its new standard is intended to be more protective of government officials than the “good faith” test. At the same time, it has also stated that the standard provides “no license to lawless conduct.”⁴⁴ According to the Court, “[i]f the law was clearly established, the immunity defense ordinarily should fail, since a reasonably competent public official should know the law governing his conduct.”⁴⁵

However, as Joanna Schwartz has observed after close examination of section 1983 qualified immunity cases, “the Court’s decisions over the next forty years have created a standard that seems virtually impossible to meet.”⁴⁶ Since the Court adopted its objective test, it has applied the doctrine in several ways that have made it far more favorable to defendants.

First, the Supreme Court adopted a heightened pleading standard for complaints in civil cases. The new standard requires that to avoid having claims dismissed, plaintiffs must state facts supporting a “plausible” claim for relief.⁴⁷ Schwartz has observed that this standard “may be particularly difficult for plaintiffs in civil rights cases to overcome.”⁴⁸ In some kinds of cases, including those that focus on the intent of government actors or the existence of local government policies or practices, “[a] plaintiff will not likely have any evidence . . . until they get to discovery.”⁴⁹

Second, to show the law was “clearly established,” the Supreme Court has generally required plaintiffs to point to an already existing authoritative judicial decision (or perhaps multiple decisions), with substantially similar facts. The decisional landscape is narrow. Protester plaintiffs must identify “controlling authority in their jurisdiction” or a “consensus of cases of persuasive authority.”⁵⁰ Unpublished decisions do not count, and courts are reluctant to consider district court decisions.⁵¹ The clearly established standard expands the scope of the qualified immunity defense by requiring that plaintiffs identify Supreme Court or published federal appeals court decisions that are identical, or nearly identical, to the one being litigated.⁵² For example, plaintiffs’ allegation that officers’ use of a particular protest policing method violated their constitutional rights would have to point to published appeals court precedents establishing that use of this method was a clearly established violation of the First Amendment or Fourth Amendment.

Third, the Court has instructed that in assessing clearly established law, courts should not define the inquiry “at a high level of generality.”⁵³ As a result, “[c]ourts have granted officers qualified immunity even when they have engaged in egregious behavior—not because what the officers did was acceptable, but because there wasn’t a prior case in which that precise conduct had been held unconstitutional.”⁵⁴

Fourth, in 2009, the Court altered the way in which courts apply qualified immunity doctrine in a manner that created another significant obstacle for civil rights plaintiffs.⁵⁵ In an earlier decision, the Court held that when assessing a qualified immunity defense, courts must first determine whether there was a violation of a constitutional right and then address whether the law was clearly established as to that right.⁵⁶ However, the Court’s current approach allows courts to grant qualified immunity based solely on whether the law in question was clearly established—that is, without determining whether there was a constitutional violation.⁵⁷ This creates a catch-22 for civil rights plaintiffs. If courts resolve cases based on the lack of clearly established authority, there will be fewer precedents defining constitutional violations.⁵⁸ That situation, in turn, results in decisions concluding that officials are not liable because of a lack of clearly established law.⁵⁹ According to critics, it also has the effect of rendering constitutional protections “hollow.”⁶⁰ By allowing courts to rely on a lack of clearly established law without ruling on the underlying constitutional claim, the Court “perpetuates uncertainty about the contours of the Constitution and sends the message to officers that they may be shielded from damages liability even when they act in bad faith.”⁶¹

Fifth and finally, the Court’s construct of a “reasonable officer” has shifted over time to grant government officials broader deference. In a 1986 decision, the Court famously wrote that qualified immunity protects “all but the plainly incompetent or those who knowingly violate the law.”⁶² Since then, the Supreme Court has stated that a defendant’s conduct is to be judged on the basis of “any reasonable officer”⁶³ or “every reasonable official.”⁶⁴ As one scholar observed, this shift implies “that in order for a plaintiff to overcome qualified immunity, the right violated must be so clear that its violation in the plaintiff’s case would have been obvious not just to the average ‘reasonable officer’ but to the least informed, least reasonable ‘reasonable officer.’ ”⁶⁵

As Joanna Schwartz has observed, the Court has “[created one additional qualified] immunity hurdle for plaintiffs: defendants’ right to immediately appeal any qualified immunity denial.”⁶⁶ Under normal procedural rules, a litigant would have to wait until the court enters a final judgment in the case to file an appeal. The special appeals process in qualified immunity cases can add “months or years to the case and dramatically increas[e] the costs of litigation” for plaintiffs.⁶⁷

The Supreme Court has offered some general justifications for its qualified immunity standards. It has asserted that qualified immunity achieves a “balance” between allowing victims to hold officials accountable and minimizing “social costs” to “society as a whole.”⁶⁸ Noting that “claims frequently run against the innocent as well as the guilty,” the Court has identified four “social costs.”⁶⁹

First, the Court has explained that the doctrine aims to avoid “the expenses of litigation” by allowing district courts to dismiss suits against officers at early stages in the litigation—and without making fact-intensive inquiries into a particular officer’s motivations.⁷⁰ Second, and relatedly, the Court expressed concern that requiring officials to respond to such litigation can “diver[t] . . . official energy from pressing public issues.”⁷¹ Third, the Court worried that the threat of litigation would “deter[] . . . able citizens from acceptance of public office.”⁷² Finally, the Court noted that the threat of lawsuits could chill lawful law enforcement conduct. It posited “there is the danger that fear of being sued will ‘dampen the ardor of all but the most resolute, or the most irresponsible [public officials], in the unflinching discharge of their duties.’ ”⁷³ Along similar lines, the Court explained that the doctrine of “[q]ualified immunity gives government officials breathing room to make reasonable but mistaken judgments about open legal questions.”⁷⁴

The Court has also defended qualified immunity’s focus on clearly established law on the basis that it would be unfair to hold government officials to constitutional rules they were not aware of at the time of the violation. It first articulated this idea in an early decision, stating that “[a] policeman’s lot is not so unhappy that he must choose between being charged with dereliction of duty if he does not arrest when he has probable cause, and being mulcted in damages if he does.”⁷⁵ Later, the Court explained: “If the law at that time was not clearly established, an official could not reasonably be expected to anticipate subsequent legal developments, nor could he fairly be said to ‘know’ that the law forbade conduct not previously identified as unlawful.”⁷⁶ As the Court has observed, “the focus” of qualified immunity is “whether the officer had fair notice that her conduct was unlawful.”⁷⁷

Critics have offered strong challenges to these justifications and to qualified immunity generally.⁷⁸ Some have attacked qualified immunity as both bad law and bad policy.⁷⁹ However, at least for the time being, the Supreme Court appears committed to retaining the doctrine.

C. Municipal Liability

Qualified immunity doctrine applies to claims against individual government officials. However, protesters can also sue municipalities, counties, and other government bodies under section 1983.

Holding governmental entities liable for constitutional violations is important for several reasons. First, these entities have much deeper pockets than individual law enforcement officers.⁸⁰ Second, holding employers liable for constitutional violations caused by their actions or policies puts pressure on those employers to change their unconstitutional behavior.⁸¹ Third, assuming the unconstitutional harm emanated from the employer, it is just to hold it, as opposed to individual officers following the employer’s commands, directly responsible for the violations.⁸²

In Monell v. Department of Social Services, the Supreme Court held that a municipal government can be held liable under section 1983 for constitutionally tortious actions.⁸³ However, under Monell and subsequent precedents, the Court has significantly narrowed the path to recovery.⁸⁴

Local governments can be held liable under section 1983 for enacting unconstitutional policies.⁸⁵ They can also be held liable if an official with “final policymaking authority” violates the Constitution.⁸⁶ However, these theories are “uncommonly relied upon” because they require plaintiffs demonstrate constitutional wrongdoing “at the highest levels of government.”⁸⁷ “Final policy makers” such as local police chiefs are rarely directly involved in applying unconstitutional policies.⁸⁸ Moreover, as Schwartz has observed, “local governments do not usually adopt policies that are unconstitutional on their face—a policy requiring officers to use excessive force, for example, or requiring officers to arrest people who exercise their First Amendment free speech rights.”⁸⁹

Most commonly, to establish Monell liability, plaintiffs must demonstrate a deprivation of a federal right occurred because of a “policy or custom” of the local government’s legislative body or of those local officials whose acts may fairly be said to be those of the municipality.⁹⁰ The informal policy or custom alleged to have caused the constitutional injury must be “so persistent and widespread as to practically have the force of law.”⁹¹ Under the policy or custom theory of section 1983 liability, local governments cannot be held liable for the actions of their employees solely because of their employment status.⁹² Rather, an employee must be acting pursuant to a municipal policy or custom, and the employer can only be held liable if one of their employees has committed an underlying constitutional violation pursuant to the policy or custom.⁹³

One theory or basis of policy or custom municipal liability that is particularly germane to public protest cases is the charge that local governments failed to train and supervise law enforcement and other officers.⁹⁴ As with other theories, however, it is very difficult to prevail on this claim. Courts have essentially treated the way a police force chooses to train its officers as a matter of policy not generally subject to judicial second-guessing in civil rights lawsuits. As the Supreme Court has noted, “the inadequacy of police training may serve as the basis for § 1983 liability,” but “only where the failure to train amounts to deliberate indifference to the rights of persons with whom the police come into contact.”⁹⁵

At each stage of litigation, protester plaintiffs face severe challenges in terms of alleging and proving a policy or custom sufficient to hold local governments accountable. At the complaint-drafting stage, plaintiffs often lack access to the facts necessary to allege an informal policy or custom.⁹⁶ Thus, they may not be able to survive a local government’s motion to dismiss for failure to meet basic pleading requirements. Even at later stages of litigation, plaintiffs are likely to struggle to adduce evidence not just that their constitutional rights were violated, but that any violations were caused by an informal policy or custom. Among other issues, the Supreme Court “has not clarified what can serve as evidence of prior constitutional violations sufficient to put police chiefs on notice that their officers need better training or supervision.”⁹⁷

The municipal liability standards have resulted in a complex, stringent, and “nonsensical” standard of municipal liability.⁹⁸ As one commentator observed, “[the] doctrine of municipal liability is convoluted and can require difficult inquiries into which city officials are ‘policymakers’ under state law on local government, into whether a[n] official was acting in a ‘local’ or ‘state’ capacity, into the extent of departmental ‘custom’ authorizing constitutional violations, into individual cities’ training and hiring processes, and into demanding questions about causation and fault.”⁹⁹

D. First Amendment “Retaliation” Claims

In addition to the many challenges posed by general qualified immunity doctrines under section 1983, the Supreme Court has recently adopted new liability limits on a specific type of claim based on retaliation for the exercise of First Amendment rights. The Court has recognized a general defense to such claims based on a finding of probable cause to arrest the speaker for any violation of law.

The First Amendment prohibits government officials from subjecting individuals to retaliatory actions because they engaged in protected speech.¹⁰⁰ To succeed on a First Amendment retaliation claim, plaintiffs must prove they engaged in a constitutionally protected activity, the defendant’s actions would “chill a person of ordinary firmness” from continuing to engage in the protected activity, and the protected activity was a substantial motivating factor in the defendant’s conduct—i.e., that there was a nexus between the defendant’s actions and the intent to chill speech.¹⁰¹

These claims have always been difficult to win. Proving retaliatory motive is difficult, but in any event not sufficient. The speaker must show that the adverse action would not have been taken absent the official’s retaliatory motive.¹⁰² For example, suppose participants arrested at a public protest claimed law enforcement restricted or suppressed their speech in retaliation for the message they conveyed. To prevail, plaintiffs must show the officer would not have arrested them or interfered with their protected speech “but for” the retaliatory reason. If the officer can show the protesters were obstructing traffic or there was any other non-retaliatory reason for the arrest, the First Amendment claim would fail.

One long-unsettled question in such cases was whether the existence of probable cause to arrest a speaker precluded a First Amendment retaliation claim brought under section 1983. In Nieves v. Bartlett, the Supreme Court answered this question in the affirmative.¹⁰³

In Nieves, the Court upheld the dismissal of a First Amendment retaliation claim brought by an individual arrested at a festival after he exchanged heated words with officers assigned to police the event. The Court held that when speakers allege officers arrested them in retaliation for the exercise of First Amendment activities, probable cause for the arrest is usually a complete defense.¹⁰⁴ Echoing its justifications for adopting the general qualified immunity standards, which were discussed earlier, the Court indicated it was concerned that officers who must often make “split-second” decisions when deciding whether to arrest will sometimes rely on the suspect’s protected speech in doing so.¹⁰⁵ The Court also reasoned that determining whether the arrest was in retaliation for the speech in such cases would often be difficult.¹⁰⁶ Thus, it concluded plaintiffs should be required in retaliation cases to plead and prove the arrest was objectively unreasonable before inquiring into the official’s subjective mental state.¹⁰⁷

The Nieves standard applies in a broad variety of contexts. However, the Court justified it using a protest-related example. The Court was concerned, it said, that “policing certain events like an unruly protest would pose overwhelming litigation risks” for officers who arrest participants.¹⁰⁸ “Any inartful turn of phrase or perceived slight during a legitimate arrest,” the Court worried, “could land an officer in years of litigation.”¹⁰⁹ The Court was concerned officers would be deterred from discharging their duties or “would simply minimize their communication during arrests to avoid having their words scrutinized for hints of improper motive—a result that would leave everyone worse off.”¹¹⁰

The Nieves rule is subject to an exception. The Court concluded “the no-probable-cause rule should not apply when a plaintiff presents objective evidence that he was arrested when otherwise similarly situated individuals not engaged in the same sort of protected speech had not been.”¹¹¹ If a plaintiff produces this comparative evidence, the burden shifts to the official to show some non-retaliatory basis for the arrest.¹¹²

The Nieves rule makes it more difficult for protesters, reporters, and others attending or participating in a public protest to demonstrate they were arrested in retaliation for their communications or other First Amendment–protected activities.¹¹³ As the data from this study confirm, in most cases it will mean that probable cause to arrest a speaker for any offense, however minor, will negate a First Amendment retaliation claim.¹¹⁴

E. Damages Claims Against Federal Officials

In Bivens, the Court implied a cause of action for damages against federal officials who violate individuals’ rights under the Constitution.¹¹⁵ The claim in Bivens was based on a violation of the Fourth Amendment’s prohibition on unreasonable searches and seizures.¹¹⁶ The Court has also recognized Bivens actions for Fifth Amendment and Eighth Amendment violations.¹¹⁷ However, during the past four decades, the Court has not recognized any additional Bivens claims. It has become increasingly skeptical of Bivens lawsuits in general, and specifically in the context of First Amendment and Fourth Amendment claims.¹¹⁸ At this juncture, it is not clear protesters have any right to sue federal officials for damages relating to First Amendment or Fourth Amendment violations.

According to the Court, Bivens and its progeny “were the products of an era when the Court routinely inferred ‘causes of action’ that were ‘not explicit’ in the text of the provision that was allegedly violated.”¹¹⁹ The Court has criticized this “ancien regime,” noting that “[i]n later years, [it] came to appreciate more fully the tension between this practice and the Constitution’s separation of legislative and judicial power.”¹²⁰ Accordingly, the Court noted, “for almost 40 years,” it has “consistently rebuffed requests to add to the claims allowed under Bivens.”¹²¹

In 2017, the Court outlined a two-step framework intended to limit the expansion of Bivens remedies.¹²² Under this framework, a court must first consider whether a case “arises in a ‘new context’ or involves a ‘new category of defendants.’ ”¹²³ The Court’s “understanding of a new context is broad.”¹²⁴ The standard is whether “the case is different in a meaningful way from previous Bivens cases” decided by the Court.¹²⁵ If so, the court must “ask whether there are any ‘special factors that counsel hesitation’ about granting the extension.”¹²⁶

According to the Court, “special factors” are rooted in concerns about the separation of powers among the branches of federal government.¹²⁷ They include, but are not limited to, the existence of alternative remedies and respect for coordinate branches of government. Thus, a court must “consider the risk of interfering with the authority of the other branches, . . . ask whether ‘there are sound reasons to think Congress might doubt the efficacy or necessity of a damages remedy’ . . . and ‘whether the Judiciary is well suited, absent congressional action or instruction, to consider and weigh the costs and benefits of allowing a damages action to proceed.’ ”¹²⁸ If any factor causes a court to hesitate, the court should “reject the request” to recognize the Bivens claim.¹²⁹ In general, the Court has described the expansion of Bivens as “a disfavored judicial activity.”¹³⁰

Although the Court has assumed First Amendment claims may be brought under Bivens, it has never expressly held as much and has sometimes expressed skepticism regarding such claims.¹³¹ In Egbert v. Boule (2022), the Court ruled that plaintiffs could not sue federal officials for money damages based on First Amendment retaliation and Fourth Amendment excessive force claims.¹³² The Court rejected both claims on the grounds that implied actions under Bivens do not extend to “new” contexts and Congress was in a better position to determine whether to recognize any such actions.¹³³ Although Egbert did not arise in the context of a public protest, the Court’s holding that First Amendment retaliation claims and Fourth Amendment excessive force claims are not viable under Bivens bodes ill for similar claims in other contexts.

II. STUDY DESIGN AND DATASETS

The purpose of this study is to assess how the foregoing governmental immunities have affected plaintiffs’ First Amendment and Fourth Amendment claims against government officials under section 1983 and Bivens for injuries sustained at public demonstrations and other events. The study tracks the disposition of more than 400 constitutional claims in over 300 federal civil rights cases.

Unlike other qualified immunity studies, which examined broad categories of decisions or dockets, my study focuses on a discrete set of activities—“public protest”—that gave rise to section 1983 and Bivens claims.¹³⁴ The decision to focus on public protest cases and claims required that the study define and identify “public protest.” For purposes of all three datasets, “public protest” was generally defined as a set of facts in which one or more individuals participated in a public march, rally, demonstration, parade, or other similar activity. Claims involving conduct related to public protest, including leafletting, public displays, and certain kinds of expressive conduct such as flag burning, were also included in the datasets. By contrast, the datasets excluded First Amendment and Fourth Amendment claims in areas including prisoner litigation, employment-related actions, conflicts involving K-12 student speech, and actions filed in connection with ordinary traffic stops or domestic disturbance calls. This definition obviously could be narrower or broader, and the public protest limit necessitated some judgment calls. Not all decisions involved large or mass demonstrations, but many did, and all included claims involving the kind of “out of doors” protest, hand-billing, and related activities typically engaged in during traditional public protest activity.¹³⁵

To conduct the study, I compiled three unique datasets. Each dataset consists of federal district court and appeals courts (including Supreme Court) decisions, which I read and coded. The first dataset, Qualified Immunity, includes 253 district and appellate court decisions, both published and unpublished, in which qualified immunity was raised as a defense to First Amendment or Fourth Amendment claims in the context of public protests.¹³⁶ In combination, these decisions addressed a total of 468 First Amendment and Fourth Amendment claims. The study examined cases from 1982, when the Supreme Court adopted its modern “two-step” qualified immunity approach, to December 2022.¹³⁷

Each of the 253 decisions in the Qualified Immunity dataset was coded for: (1) court; (2) date of decision; (3) whether the decision was published or unpublished; (4) type of constitutional claim (First Amendment or Fourth Amendment); (5) procedural posture in which a qualified immunity defense was raised (Summary Judgment, Motion to Dismiss, or Trial); (6) disposition of the motion to dismiss on qualified immunity grounds (granted or denied); (7) whether denials of summary judgment addressed the merits or were based on the existence of genuine issues of material fact; (8) whether a motion to dismiss or for summary judgment was granted based on Step One, Step Two, or Both steps of the qualified immunity analysis; (9) in appeals, whether the appellate court affirmed or reversed the district court’s qualified immunity disposition; (10) description of the First Amendment or Fourth Amendment claim; and (11) basis for the court’s conclusion on the qualified immunity motion. All decisions in the Qualified Immunity database were also coded for (12) whether plaintiffs pursued a claim for municipal liability under Monell; (13) whether a defense motion to dismiss or for summary judgment on the Monell claim was granted or denied; and (14) general grounds for the court’s disposition of the municipal liability claim.

The other two datasets are more limited in scope. The Nieves Retaliation Claims dataset includes forty-one published and unpublished federal court decisions from 2019 through December 2022.¹³⁸ Each decision was coded for (1) procedural posture; (2) disposition of a defense motion to dismiss or for summary judgment based on Nieves; (3) criminal offense(s) charged; (4) whether the decision addressed the Nieves unequal treatment exception and, if so, the court’s disposition of that part of the claim; (5) whether plaintiffs pursued a claim for retaliation against the municipality; and (6) disposition of the retaliation claim.

The Bivens Claims dataset includes twenty-six published and unpublished decisions between 1971 and the end of December 2022 in which courts addressed First Amendment or Fourth Amendment Bivens claims in the context of public protests.¹³⁹ Each decision was coded for (1) type of constitutional claim (First Amendment, Fourth Amendment, or both); (2) whether the court recognized a Bivens First Amendment or Fourth Amendment cause of action; and (3) in the event the court did not recognize the Bivens action, its reasoning (for example, claim arises in a “new context,” the presence of “special factors,” and so forth).

All three datasets have statistical and other limitations that narrow the study’s scope and findings. Most empirical qualified immunity studies have relied on decisions available on Westlaw.¹⁴⁰ However, as Joanna Schwartz has observed, because Westlaw omits many unpublished opinions as well as lawsuits resolved without any opinion, such studies can “say little about the frequency with which qualified immunity is raised, the manner in which all motions raising qualified immunity are decided, and the impact of qualified immunity on case dispositions.”¹⁴¹ However, as Schwartz acknowledges, such studies can “offer insights about the ways . . . courts assess qualified immunity . . . in a written opinion.”¹⁴² The study examines opinions accessible to courts when they analyzed qualified immunity and other defenses in protest cases.

There are some quantitative limitations. Since my study is limited to claims brought in “public protest” cases, it is not based on a random or complete sample of all qualified immunity decisions. Thus, quite intentionally, it does not purport to make claims about the dispositions of all qualified immunity motions. Moreover, because my study considers both district court and appeals courts decisions, and primarily claims addressed at both the motion to dismiss and summary judgment stages, it cannot account for all final dispositions of qualified immunity motions in the study.¹⁴³ For example, a qualified immunity motion denied at the motion to dismiss stage could be granted or denied later at summary judgment. Or the case may settle. The Retaliation Claims and Bivens Claims datasets, which are smaller samples, have similar quantitative limitations. In addition, the sample sizes in these two datasets are relatively small. The three datasets provide snapshots of how courts have disposed of qualified immunity and other motions in public protest cases during the relevant time periods.

Even with the foregoing limitations, the study offers a rare glimpse into how courts address qualified immunity in public protests cases. The data also provide information about the most common types of claims protesters pursued and how these different claims fared under qualified immunity, whether defense motions to dismiss or for summary judgment were successful, how courts applied the two-step qualified immunity analysis, whether Monell claims were pursued and sustained, the effect of Nieves on First Amendment retaliation claims, and whether protesters have been able to pursue Bivens actions. In addition, the study’s qualitative analysis helps reveal the extent to which First Amendment and Fourth Amendment law has developed—or failed to develop—in the public protest context and the extent to which courts have left important questions unanswered. In sum, the study offers an in-depth analysis of how qualified immunity has affected constitutional claims brought by protester plaintiffs.

III. DATA AND FINDINGS

This Part presents the study’s data and principal findings. It begins with a quantitative and qualitative examination of the largest dataset, Qualified Immunity. The Part then turns to the effect of governmental immunities and defenses on municipal liability, First Amendment retaliation claims, and protesters’ Bivens actions.

A. Section 1983 and Qualified Immunity

This Section presents findings from the Qualified Immunity dataset. It begins with a general overview of the dataset, and then discusses more detailed quantitative findings concerning First Amendment and Fourth Amendment claims. In connection with the discussion of these claims, the Section also presents qualitative assessments of the state of clearly established First Amendment and Fourth Amendment law in public protest cases.

1. Qualified Immunity Dataset: Overview

Table 1 contains general information about the overall number of cases, whether decisions were published or unpublished, and the distribution of federal district court and courts of appeals decisions in the Qualified Immunity dataset. As indicated, this dataset includes federal district and appellate court public protest decisions from 1982 through the end of 2022 in which defendants sought dismissal or summary judgment based on qualified immunity. It does not include state-level constitutional claims or qualified immunity decisions.

The Qualified Immunity dataset consists of 253 (published and unpublished) federal district court and appellate court decisions. As noted earlier, for purposes of establishing whether there is clearly established law regarding a constitutional right, courts look primarily to published courts of appeal decisions (although some will also look to published district court decisions). There are more than twice as many published (170) as unpublished (83) decisions in the database. In terms of precedents most likely to be considered controlling, there are eighty-six published appeals court decisions—including two decisions from the Supreme Court.¹⁴⁴

Table 1. General Case Data
Cases in the Dataset	253
Published Cases	170
Unpublished Cases	83
Appellate Cases (Including Supreme Court)	114
District Court Cases	139
Published Appellate Cases	86

The study of the Qualified Immunity dataset focused primarily on the disposition of First Amendment and Fourth Amendment claims subject to defense motions for dismissal or summary judgment based on qualified immunity. As indicated in Table 2, the dataset includes 468 distinct First Amendment and Fourth Amendment claims as to which defendants filed such motions. A claim was counted just once, even if brought against multiple defendants—unless the court disposed of the claim differently for certain defendants, in which case the claim was counted more than once. In general, courts tended to analyze qualified immunity motions by multiple defendants together.

There were slightly more First Amendment (253) than Fourth Amendment (215) claims in the dataset. More qualified immunity motions concerning these claims were decided by federal district courts (287) than by federal appellate courts (181). In many cases, no appeal appears to have been filed after the district court disposition of defense qualified immunity motions. Although it is possible appeals were filed but not noted on Westlaw, many cases appear to have terminated at the district court level without any interlocutory or other appeals.

The study examines constitutional claims subject to defense qualified immunity motions, again in cases that resulted in a published or unpublished opinion available on Westlaw. If, at the time the study period closed, an appellate decision was not available in Westlaw, then the district court decision was included in the dataset. In all other cases, the highest available appellate decision (Supreme Court or federal court of appeal) was coded instead of the district court opinion.

Table 2. General Claims Data
Claims in the Dataset	468
First Amendment Claims	253
Fourth Amendment Claims	215
Claims Considered in District Courts	287
Claims Considered in Appellate Courts (Including Supreme Court)	181

Like other studies, mine tracks the disposition and analysis of constitutional claims brought by protester plaintiffs.¹⁴⁵ A docket study focusing on public protest cases, as defined for purposes of the study, was not feasible. Even if all public protest cases could be identified through a review of court dockets, to get a substantial sample one would need to review complaints filed in a multitude of districts.¹⁴⁶ Focusing on defendants would provide some information about how many individual officers were sued and how many achieved dismissals, but it would not provide information about why they were sued or how courts analyzed constitutional claims in qualified immunity cases.¹⁴⁷ Focusing on case-level data, for example, how many cases resulted in dismissal on qualified immunity grounds, would likewise not tell us what kinds of claims protesters typically bring, the dispositions or success rates of defense motions to dismiss or for summary judgment regarding specific claims, and information about substantive First Amendment and Fourth Amendment law. My study focuses primarily on claim-level findings to learn how courts have analyzed motions to dismiss claims based on qualified immunity in the specific context of public protest.

Success rates overall and by claim for defense motions to dismiss or for summary judgment based on qualified immunity are reported in Figure 1. The Qualified Immunity dataset includes only cases in which defendants raised a qualified immunity defense as to one or more constitutional claims and courts explicitly addressed the defense. A defense qualified immunity motion was deemed “successful” if it was granted or dismissal of the claim was upheld on qualified immunity grounds. Motion success was not defined as disposing of all claims in the case, including Monell, state law, and other actions.¹⁴⁸ Rather, my study focused on the qualified immunity determination with respect to each claim of constitutional wrong.

Figure 1. Defense Q.I. Motion Success Rates

Although approximately a third of qualified immunity motions succeeded at the pleadings stage (53/152 for all claims), as in other studies defendants were far more likely to prevail at summary judgment.¹⁴⁹ Examination of qualified immunity decisions in protest-related cases thus adds some support for the claim that the defense does not generally serve the goal of weeding out cases at the earliest stages of litigation and sparing defendants the expenses of discovery.¹⁵⁰ Defense success rates at the motion to dismiss stage in my study are somewhat higher than those reported in some others, but generally consistent with dismissal findings across studies.¹⁵¹ In sum, in most protest cases plaintiffs were able to proceed to discovery on their claims.

As noted, courts were more likely to grant summary judgment on qualified immunity grounds than to dismiss at the pleadings stage. Across all claims, defendants prevailed on 58% (183/313) of their motions. That success rate was consistent across claims, with courts granting 60% (101/168) of defense qualified immunity motions in First Amendment cases and 57% (82/145) of summary judgment motions in Fourth Amendment cases. Again, these numbers are generally consistent with those reported in other studies.¹⁵²

Courts denied summary judgment as to 130 claims. In 53% of those cases (69/130), the defense motion was denied because there were genuine issues of material fact at issue. In the other 47% (61/130) of summary judgment motions, courts denied the motions on the merits (that is, held that plaintiffs had met their burden of showing a violation of clearly established law).

As shown in Figure 2, appellate courts were more likely than district courts to rule in defendants’ favor on qualified immunity. In published and unpublished decisions available on Westlaw, district courts granted 45% (128/287) of defense motions. Appellate courts ruled in defendants’ favor on 60% (109/181) of plaintiffs’ constitutional claims. These numbers are likely owing in part to defendants’ low rate of success at the pleadings stage, which in many instances were the last results coded. District courts, which faced more defense motions at the pleadings stage, were inclined to allow for some factual development before dismissing plaintiffs’ claims.

Figure 2. Q.I. Motion Success Rates by Court

Figure 3 shows that appellate court success rates were similar if one considers only the eighty-six published decisions. Courts granted or upheld defense qualified immunity defenses with respect to 57% (77/135) of all constitutional claims. In published appellate decisions, the rate of success for defendants was still lower (48% or 15/31) at the motion to dismiss stage than when the case had reached the summary judgment stage (60% or 62/103). However, in published decisions appellate courts ruled in defendants’ favor at the pleadings stage at a somewhat higher rate than did all courts at that stage.¹⁵³ Appellate courts may have been responding to the Supreme Court’s directive that non-meritorious cases should be dismissed at an earlier stage, or they may simply have been convinced that plaintiffs had not adequately pleaded a clearly established violation under applicable pleading rules.

Figure 3. Q.I. Motion Success Rates in Published Appellate Decisions

As discussed earlier, under qualified immunity doctrine, courts can dismiss or grant summary judgment for defendants if the plaintiff has not demonstrated a constitutional violation occurred (“Step One”) or if, despite the occurrence of a constitutional violation, the law was not “clearly established” at the time the violation occurred (“Step Two”).¹⁵⁴ Prior to 2009, the Supreme Court instructed lower courts to address these two steps in order.¹⁵⁵ In 2009, the Court held the sequence was not mandatory; thus, courts could skip Step One and base decisions solely on analysis at Step Two.¹⁵⁶

Grants of defense qualified immunity motions were coded for sequencing. If a claim was dismissed or defendants prevailed on summary judgment, the disposition was coded “Step One” when the basis for granting or upholding qualified immunity was the absence of a constitutional violation, “Step Two” if the sole basis for granting or upholding qualified immunity was the court’s conclusion that the law was not “clearly established,” and “Both” if the court granted or upheld qualified immunity on the basis that there was a constitutional violation but the law was not “clearly established” at the time. The few instances in which the court’s decision was unclear regarding which Step it was relying on were also coded as “Both.”

Figure 4. Sequencing and Success Rate

As indicated in Figure 4, when courts ruled in defendants’ favor in public protest cases, they did so at Step One 57% of the time (133/235). For Fourth Amendment claims, courts granted qualified immunity at Step One 63% (67/107) of the time. That percentage dropped to 52% (66/128) for First Amendment claims. The higher rate for Fourth Amendment claims may be attributable to the lenient probable cause and excessive force standards applied in Fourth Amendment cases, which make it more likely courts will conclude there was no constitutional violation. Of course, the higher success rates for defense motions may also be attributable to the relative weakness of the plaintiffs’ Fourth Amendment claims. Although not included in Figure 4, the number of overall Step One dispositions was somewhat higher (65% or 50/77) if one looks only at the eighty-six published appellate court decisions in the dataset.

Scholars have raised the concern that if courts proceed directly to Step Two there will be fewer opportunities to develop “clearly established” law, thus making it more difficult for plaintiffs to prevail in qualified immunity cases.¹⁵⁷ There is also a related concern that constitutional law will stagnate or fail to develop if courts do not rule on the constitutional question at Step One.¹⁵⁸

My data do not indicate courts are engaged in widespread avoidance of constitutional issues in public protest cases. But again, the findings may be driven in part by the constitutional standards courts are called upon to apply to First Amendment and Fourth Amendment claims. Those standards call for, among other things, consideration of context and assessment of the “reasonableness” of governmental actions. The constitutional doctrine may make it easier for courts to dispose of claims by concluding no violation has occurred, that plaintiffs have not satisfied their burden of providing evidence of a constitutional violation, or that the law is not sufficiently clear.

The data show that in a significant percentage of instances, 35% overall (82/235), courts relied on the Step Two conclusion that the law was not “clearly established.”¹⁵⁹ In these instances, courts did not address the substance of the constitutional claims. As discussed later, judicial reliance on a lack of clearly established law in public protest cases has probably limited development of substantive constitutional law regarding First Amendment and Fourth Amendment rights.¹⁶⁰ Consider that in 42% (54/128) of rulings in defendants’ favor on First Amendment claims, courts relied on the absence of clearly established law regarding issues ranging from the constitutionality of exclusions of protesters from public properties to the right to record law enforcement. Those rulings make it more difficult for plaintiffs in future cases to prove a violation or show the law is clearly established.¹⁶¹ Courts also avoided the constitutional question in motions addressing a quarter of Fourth Amendment claims.

Some commentators have suggested that qualified immunity doctrine allows for development of substantive law because it permits courts to find a constitutional violation at Step One but still hold the law was not clearly established at Step Two.¹⁶² My data show little evidence of such innovative judicial practice. Only 6% (8/129) of First Amendment claims were disposed of in this way, with a slightly higher percentage of Fourth Amendment claims (11% or 12/108). Again, these percentages track other studies’ findings.¹⁶³

Finally, my data show that appellate reversal or affirmance rates in protest-related qualified immunity cases were very low. Overall, appeals courts reversed lower court decisions on qualified immunity only 33% (59/181) of the time. For First Amendment claims, the reversal rate was 33% (36/108) and for Fourth Amendment claims it was 32% (23/73). These reversal rates are generally consistent with those reported in other qualified immunity studies.¹⁶⁴ A closer look at these data demonstrates that appellate courts reversed district courts 40% of the time (25/62) when they denied a qualified immunity motion, but only 26% of the time (30/114) when they granted a qualified immunity motion. This finding is consistent with the data in Figure 2, which show appellate courts were more likely to rule in favor of qualified immunity across a range of claims.

2. First Amendment Claims

In addition to the general claims data discussed above, the Qualified Immunity dataset includes more specific information about First Amendment claims. The data include the types of claims protesters pursued, the success rates for qualified immunity motions respecting different types of claims, and the substantive law as it pertains to the First Amendment rights of public protesters.

i. Types of Claims

There are 253 First Amendment claims in the Qualified Immunity dataset. Figure 5 shows the distribution and frequency of the six most common types of First Amendment claims.

Figure 5. Types of First Amendment Claims

Retaliation claims were the most frequently litigated type of First Amendment claim. Law enforcement or other government officials violate the First Amendment when they arrest, use force against, or otherwise restrict expressive activity in retaliation for the exercise of First Amendment rights.¹⁶⁵ To prevail on a retaliation claim, “the plaintiffs must show that they engaged in protected activity, that the defendants’ actions caused an injury to the plaintiffs that would chill a person of ordinary firmness from continuing to engage in the activity, and that a causal connection exists between the retaliatory animus and the injury.”¹⁶⁶

As discussed earlier, in Nieves v. Bartlett (2019), the Supreme Court modified the law with respect to retaliation claims.¹⁶⁷ The Qualified Immunity dataset includes decisions addressing seventy-eight retaliation claims subject to the standards that applied prior to Nieves.¹⁶⁸

Nearly half (124/253 or 49%) of the First Amendment claims pertained to protesters’ rights to access public properties and the doctrines that apply to speech and assembly in those places. Individuals and groups have a First Amendment right to speak and assemble in certain public properties, including public streets, parks, and sidewalks.¹⁶⁹ While governments can impose content-neutral time, place, and manner restrictions on speech and assembly in these “quintessential” public fora, they generally cannot restrict expression based on its content or prohibit access altogether.¹⁷⁰ Under the First Amendment, regulations of speech based on subject matter or viewpoint receive strict judicial scrutiny and must be narrowly tailored to further compelling governmental interests.¹⁷¹ Thirty-seven First Amendment claims asserted that government regulated speech based on its content. Time, place, or manner regulations are subject to a lower degree of judicial scrutiny. They must be content-neutral, supported by important governmental interests, narrowly tailored to burden no more speech than necessary, and must leave available alternative channels of communication.¹⁷² Fifty-three First Amendment claims involved application of this standard.

Under the First Amendment, protesters and other speakers also have a right to access other public forums, primarily depending on the extent to which governments intend to allow expressive activities in these places and the extent to which such activities would affect their ordinary functioning.¹⁷³ In places generally open to the public for expressive purposes, or so-called designated public fora, governments can impose content-neutral time, place, and manner regulations.¹⁷⁴ In “non-public” or “limited” public forums, regulations need only be viewpoint-neutral and reasonable.¹⁷⁵ Thirty-four First Amendment claims concerned government restrictions on access to various public properties.

Rounding out the First Amendment claims, protesters brought thirty-two claims challenging a variety of policing methods—for example, use of tear gas, herding or “kettling” of protesters, and surveillance of protest groups. Protesters claimed these actions chilled or prohibited expression. Plaintiffs also pursued a dozen claims relating to arrests or other adverse actions taken against protesters who were recording law enforcement at public demonstrations. As discussed below, whether there is a First Amendment right to record police is an issue on which courts remain somewhat divided.¹⁷⁶

ii. Claims Disposition Data

Figure 6 shows the success rates for qualified immunity motions respecting the five most common types of First Amendment claims.¹⁷⁷ Significant findings relate to the procedural posture of qualified immunity dispositions and the disparate success rates for qualified immunity motions challenging certain claims.

Figure 6. Q.I. Motion Success Rates by First Amendment Claim

Although some of the sample sizes are small, the data generally show that plaintiffs were able to keep claims alive at the pleadings stage. The success rate percentages for retaliation, content-based speech regulations, and access to forum claims were in line with the overall pleadings stage dismissal percentages reported earlier.¹⁷⁸

Two claims produced unanticipated results. In qualified immunity motions respecting challenges to time, place, and manner regulations, defendants prevailed 63% (10/16) of the time. The judicial balancing that applies to time, place, and manner regulations generally requires consideration of factual context not typically available at the pleadings stage. The high success rate may reflect the deferential standard applicable to content-neutral time, place, and manner regulations, the uncertain state of the law as it pertains to application of the standard, the relative strength or weakness of the claims in the dataset, or some combination of these factors.

The other unexpected finding is that only 7% (1/14) of motions to dismiss First Amendment challenges to protest policing methods were successful. However, several of these claims relied on allegations that police had used aggressive policing methods against compliant and peaceful protesters or dispersed assemblies without cause or warning.¹⁷⁹ Taking those allegations as true, courts concluded they stated a clear violation of the First Amendment.

At summary judgment, defendants substantially prevailed on their qualified immunity motions, winning 72% (26/36) of time, place, and manner claims, 62% (33/53) of retaliation claims, and 55% (11/18) of claims challenging protest policing methods. Again, there were a couple of exceptions. Defendants were granted qualified immunity as to only 44% (11/25) of claims involving content-based speech regulations and won only 50% (10/20) of motions relating to claims involving access to public property. This may reflect the fact that the law in both areas is longstanding and relatively clear. As discussed, under the First Amendment, laws or regulations based on content face a heavy presumption of invalidity. Similarly, protesters have a presumptive right to access certain public properties including public parks, streets, and sidewalks.

iii. First Amendment Law and Protesters’ Rights

The numbers paint an important, if only partial, picture when it comes to application of qualified immunity doctrine in First Amendment cases. The study was also designed to identify and critically analyze the substantive law that has developed—or failed to develop—during application of qualified immunity doctrine. The law that matters most is controlling authority in a specific jurisdiction. However, using a qualitative assessment, we can get a more general sense of the development of substantive standards concerning protesters’ First Amendment rights. The assessment that follows relies primarily on published appellate court decisions but, when useful in terms of filling some gaps, also considers published district court decisions.

Although retaliation claims were the most common in the Qualified Immunity dataset, the core First Amendment rights of protesters relate to access to public properties and the application of content neutrality standards there. Protesters rely on access to public forums such as public streets, parks, and sidewalks, as well as other public properties, to organize and participate in public demonstrations, rallies, and other events.

In public forum qualified immunity cases, several courts treated arbitrary, broad, and effective denials of access to public fora as First Amendment violations.¹⁸⁰ They also held that precedents clearly established protesters’ rights to distribute pamphlets and have access to an audience in a public forum,¹⁸¹ engage in peaceful residential picketing,¹⁸² protest on private property with the owner’s consent,¹⁸³ be present on State House grounds after 6:00 p.m.,¹⁸⁴ and engage in non-disruptive activity on a public sidewalk adjacent to a public school.¹⁸⁵

However, appellate courts upheld several bans on protest in government properties other than public streets, parks, and sidewalks.¹⁸⁶ In addition, they concluded the following actions did not violate clearly established First Amendment rights to access public properties:

Enforcing an invalid permit ordinance that violated the First Amendment, on the ground that the officer was entitled to rely on the ordinance;¹⁸⁷
Excluding a protester from state courthouse grounds and lands, because the “right of access to judicial proceedings” was not clearly established at the time;¹⁸⁸
Arresting a protester for refusing to move a rally from the sidewalk adjacent to Liberty Bell Center in Independence National Historic Park, because it was not clearly established at the time that the sidewalk was a public forum;¹⁸⁹
Promulgating and enforcing a curfew, since protestors did not have a clearly established right under the First Amendment to continuously occupy a plaza on state capitol grounds for an indefinite time;¹⁹⁰ and
Denying a state university student’s request to set up a table in the patio area outside the student union, since the right to access such space was not clearly established.¹⁹¹

As one might expect based on qualified immunity doctrine, the forum access precedents allow protesters to hold officials liable for egregious restrictions, including flat bans on access to traditional or quintessential public fora. However, they also permit officials to enforce otherwise unconstitutional permit requirements and exclude protesters from important venues on the ground that there is insufficient controlling authority addressing access to those places or no reasonable official would know this violated the First Amendment.

According to the decisions, it is difficult for protesters to prove a clearly established right to access a property unless that same property has been previously declared a public forum for First Amendment purposes. But when courts rely on the absence of controlling authority with respect to a public place, they fail to develop forum law. This is part of qualified immunity’s “vicious cycle.”¹⁹²

Protesters also rely on courts to enforce content neutrality rules in public places. The data suggest they have done so unevenly and inconsistently. The Supreme Court has admonished lower courts not to define constitutional issues at a high level of generality but to rely only on controlling precedent.¹⁹³ Nevertheless, in some contexts, courts applied general doctrinal rules to deny qualified immunity. In these instances, failure to follow the Court’s instructions benefitted protester plaintiffs.

For example, courts relied on the general principle that content-based regulations of expression violate the First Amendment. Based on that principle, they held that forcing abortion protesters to vacate a public sidewalk based on the content of their signs or arresting someone for, without more, burning an American flag violated clearly established First Amendment rights.¹⁹⁴ They also concluded, again based on general standards forbidding content-based speech regulations, that public university officials cannot prohibit student protests because of the content of their message and law enforcement officers violated the First Amendment when they made no serious effort to quell hecklers before shutting down a public protest.¹⁹⁵ Similarly, appellate courts held that it is clearly established that protesters cannot be arrested for communicating protected profanity.¹⁹⁶ Finally, one appeals court held that protesters cannot be arrested for engaging in an unusual form of dissent, on the ground that the First Amendment “protects bizarre behavior.”¹⁹⁷

By contrast, when courts followed qualified immunity law to the letter, they frequently upheld government actions that violated content neutrality rules. In several cases courts concluded defendants were entitled to qualified immunity even though they adopted or enforced content-based regulations. For example, courts held that the following actions and regulations did not violate clearly established First Amendment law:

Ordering anti-abortion activists displaying fetuses near a middle school to disperse under a law prohibiting disruptive presence at schools;¹⁹⁸
Arresting protesters for demonstrating publicly in thong underwear;¹⁹⁹
Arresting the driver of a truck who painted words on the side of his truck indicating he was “a fucking suicide bomber communist terrorist!” with “W.O.M.D. on Board”;²⁰⁰
Excluding a protester from a welcoming ceremony authorized by U.S. Senate resolution for carrying a sign objecting to the intended disposition of Olympic dormitories for correctional purposes;²⁰¹
Preventing a journalist from engaging with a counter-protester, under threat of arrest, at a public library children’s book reading event called “Drag Queen Story Hour”;²⁰² and
Excluding protesters from an official speech on private property because of the viewpoint of a message displayed on a bumper sticker on their car.²⁰³

In these instances, courts did not apply general content neutrality principles. Instead, they required that protesters identify controlling authority with facts similar or identical to those in the case under review—a case (or two) involving protesters in thong underwear or messages on bumper stickers, for example. With respect to novel claims, or at least claims courts viewed as such, they were quite strict about application of qualified immunity standards. To be fair to lower courts, even the Supreme Court has sometimes equivocated on the content neutrality point in the context of protests. The Court held in one case that it was not clearly established that Secret Service agents bore a responsibility to ensure that protest groups with different viewpoints had access to comparable locations during a presidential visit.²⁰⁴ Even so, looking for precedential twins and dead ringers in highly context-specific protest cases led courts to uphold qualified immunity.

Protesters’ speech and assembly rights are substantially affected by the enforcement of time, place, and manner regulations. Here, too, the data show very mixed success for protester plaintiffs. In several cases challenging time, place, and manner restrictions, courts concluded protesters had either not alleged or adduced evidence of a First Amendment violation.²⁰⁵ In others, courts concluded that the applicable law concerning time, place, and manner was not clearly established:

The Fourth Circuit held that a reasonable officer could have believed, in 2005, that prohibiting an abortion protester from displaying large, graphic signs depicting aborted fetuses at a major intersection was lawful because case law from the Fourth Circuit and Supreme Court was ambiguous on that issue.²⁰⁶
The Ninth Circuit concluded that denial of protestors’ application for a march permit without a promise on protestors’ part not to engage in civil disobedience was unlawful, but the condition did not violate clearly established First Amendment rights under controlling circuit and Supreme Court precedent.²⁰⁷
The D.C. Circuit held that a reasonable police officer could have believed that, given its proximity to the Capitol, a protest on the East Front sidewalk of the U.S. Capitol was subject to different First Amendment standards than apply in similar public properties.²⁰⁸ The court also agreed with the government’s assertion that because narrow tailoring is “ ‘not an exact science,’ a reasonable officer should not be expected to perform that analysis prior to arresting an individual for violating a time, place, and manner restriction governing expressive activity in a public forum.”²⁰⁹

As critics of qualified immunity doctrine have complained, in determining whether the law of time, place, and manner was clearly established, some courts engaged in factual parsing and line-drawing. For example, the Ninth Circuit concluded that relegation of a public prayer event to a “First Amendment area” burdened the plaintiffs’ speech to a substantially greater degree than necessary to achieve the government’s purposes.²¹⁰ However, the court held officials were entitled to qualified immunity because the relevant case law indicated that time, place, and manner doctrine, in particular the narrow tailoring requirement, distinguished between claims that an audience is essential to the message being conveyed and claims that location was essential for that purpose.²¹¹ Since plaintiffs were challenging the regulation based on locational as opposed to audience proximity, the court reasoned, a reasonable official would not have had sufficiently clear legal guidance to avoid violating the plaintiffs’ First Amendment rights.²¹² The Ninth Circuit’s “narrow tailoring” analysis highlights a central challenge plaintiffs face in terms of identifying clearly established law.

Protesters also brought First Amendment challenges to various protest policing methods, including issuance of unlawful dispersal orders, use of less-lethal weapons during protest events, and surveillance of protest groups. The Eleventh Circuit held that using cordons or barriers that prevent protesters from being seen or heard by anyone violates the First Amendment.²¹³ Several courts held that arbitrary dispersals of otherwise lawful public protests violate clearly established First Amendment law.²¹⁴ Courts also concluded that deploying tear gas and other less-lethal munitions against protesters who are not engaging in any illegal activity is unconstitutional.²¹⁵ Finally, the Ninth Circuit held that government officials violated clearly established First Amendment law when they conducted an eight-month investigation into a vocal, but entirely peaceful group.²¹⁶

However, results changed dramatically if courts discerned even an inkling of disruption or potential for violence at a public protest. In that event, they were far more likely to give law enforcement the benefit of the doubt in terms of protest-policing methods. For example, courts held that confiscating signs at demonstrations, using tear gas against protesters blocking egress from an industrial plant, arresting protesters who refused law enforcement directives to use a “free speech zone,” and making preemptive arrests did not violate the First Amendment or did not violate clearly established law.²¹⁷ In sum, while peaceful and compliant protesters were successful in pursuing challenges to protest policing methods, evidence or even allegations of disruption or potential for violence made success far less likely.

As noted earlier, the most frequently pursued First Amendment claim was that officials unlawfully retaliated against protesters for engaging in protected speech and assembly.²¹⁸ Lower federal court decisions in the Qualified Immunity dataset did not produce much law concerning First Amendment retaliation claims. Retaliation claims often turn on the motive of the defendant, thus making them poor vehicles for establishing bright line rules.²¹⁹ They are also fact-dependent in other ways.

In a typical case, the Eighth Circuit held that when protesters moved toward officers “in a threatening manner” and blocked traffic, “[a] reasonable officer could conclude that this conduct violated Minnesota law and was not protected speech.”²²⁰ Further, the court concluded that since there was no evidence the protesters had been singled out while other similarly situated speakers had not been arrested, “[t]he only reasonable inference supported by the record is that the group’s unlawful conduct, not the protected speech, motivated the officers’ actions.”²²¹

Nevertheless, a few retaliation decisions produced intriguing results. In one case, a district court held that retaliating against protesters for their speech by surveilling them and pointing a red laser from a sniper rifle at a group member during a speech violated the First Amendment.²²² In an unpublished decision, the Ninth Circuit concluded that a reasonable official would know that directing a train into the path of demonstrators, one of whom lost his legs as a result, to stop a protest violated the First Amendment.²²³ In these decisions, at least, the courts did not point to any prior precedent with similar facts. Perhaps when the facts are so egregious, courts are willing to bend the clearly established standard.

Finally, courts addressed claims that officers violated the First Amendment when they interfered with or prevented the recording of officers as they engaged in protest policing. As Joanna Schwartz has observed, “[c]oncerns that the Court’s qualified immunity jurisprudence renders the Constitution hollow are even more acute for constitutional claims involving new technologies and techniques.”²²⁴ Several courts have held that there is a First Amendment right to record police at a public protest and that right is clearly established.²²⁵ However, other courts have held that at the time of the alleged violation, the right to record was not clearly established or not apparent to all reasonable officers.²²⁶ Courts have also observed that the right is not unlimited, and that arresting protesters for recording officers in ways that interfere with their duties does not violate clearly established law.²²⁷

In sum, First Amendment decisions in the Qualified Immunity dataset demonstrate many of the pathologies of qualified immunity doctrine. While courts have held that egregious forms of governmental abuse can be the basis for a claim under section 1983, they have also upheld qualified immunity in cases involving denial of access to public fora, content discrimination, and questionable time, place, and manner regulations. Courts have applied the doctrine inconsistently, sometimes relying on general principles and in other instances demanding precise controlling authority.

We also learned that although wholly peaceful and compliant protesters can pursue claims for damages, at the first sign of disruption or potential violence, courts deferred to officers’ choice to use aggressive protest policing methods. In terms of retaliation, government actors probably cannot mow down demonstrators with a train—although the only opinion on this matter is unpublished and is not controlling authority concerning other types of conveyances. Again, in instances in which the facts are truly egregious, courts may apply the qualified immunity standard more flexibly. Finally, the cases indicate that not all appellate courts have concluded that there is a clearly established First Amendment right to record police at demonstrations.

3. Fourth Amendment Claims

The Qualified Immunity dataset includes court decisions in which 215 Fourth Amendment claims were the subject of defense qualified immunity motions. Although the data support some clear limitations on governmental actions under the Fourth Amendment in the protest context, they also demonstrate an overall lack of substantive development.

i. Types of Claims

Figure 7 shows the most common Fourth Amendment claims plaintiffs pursued in the cases in the Qualified Immunity dataset. The general standards governing these 215 Fourth Amendment claims are well-established.

Figure 7. Types of Fourth Amendment Claims

The Fourth Amendment protects the “right of the people to be secure in their persons . . . against unreasonable searches and seizures.”²²⁸ To prevail on a claim for false arrest, a plaintiff must demonstrate that officers lacked probable cause to make the arrest. Probable cause to arrest exists when the officers have knowledge or reasonably trustworthy information of facts and circumstances that are sufficient to warrant a person of reasonable caution in the belief that the person to be arrested has committed or is committing a crime.²²⁹ The existence of probable cause to arrest, even for a very minor offense, is a complete defense to a Fourth Amendment false arrest claim.²³⁰

In an excessive force claim, a plaintiff must show that the use of force was excessive under the facts and circumstances presented.²³¹ In making this determination, the Supreme Court has instructed lower courts to pay “careful attention” to factors such as “the severity of the crime at issue, whether the suspect poses an immediate threat to the safety of the officers or others, and whether he is actively resisting arrest or attempting to evade arrest by flight.”²³² As the Court has emphasized, “[t]he ‘reasonableness’ of a particular use of force must be judged from the perspective of a reasonable officer on the scene, rather than with the 20/20 vision of hindsight.”²³³

Finally, a seizure of the person occurs “when there is a governmental termination of freedom of movement through means intentionally applied.”²³⁴ To be valid under the Fourth Amendment, a seizure or detention must be reasonable under the circumstances. Under the Fourth Amendment, an officer may seize an individual’s property from a public area “only if Fourth Amendment standards are satisfied—for example, if the items are evidence of a crime or contraband.”²³⁵ Officers may also conduct searches incident to arrest when they have reasonable suspicion contraband is present.²³⁶

ii. Claims Disposition Data

The success rates for defense motions to dismiss or for summary judgment based on qualified immunity are shown in Figure 8. The same caveats that applied to determining successful disposition of defense motions respecting First Amendment claims apply to Fourth Amendment claims. The findings count granted motions to dismiss and for summary judgment, and appellate court rulings upholding those grants as successful whether or not plaintiffs amended their complaints or their claims were considered on remand after appeal. The success rates are, as indicated, snapshots of dispositions in reported decisions available on Westlaw.

Figure 8 shows that, like the First Amendment claims in the dataset, two-thirds or more of Fourth Amendment claims survived defense motions to dismiss. By contrast, at summary judgment, courts were much more inclined to grant or uphold qualified immunity for defendants for false arrest (61% or 48/79 claims) and unlawful search or seizure (71% or 15/21 claims).

Figure 8. Q.I. Motion Success Rates by Fourth Amendment Claim

As discussed earlier in the general data findings, when addressing qualified immunity respecting Fourth Amendment claims, courts were more likely to grant immunity at Step One. In those instances, courts held that no violation had occurred, instead of concluding that there was a lack of clearly established law at Step Two.²³⁷ As we have seen, courts were overall likely to grant defense motions for summary judgment. But the high rate of summary judgment for false arrest and unlawful search and seizure claims likely also reflects the deferential probable cause and reasonableness standards that apply to such claims.

The exception was defense motions for summary judgment on excessive force claims, which succeeded only 42% (19/45) of the time. As discussed below, several courts held that law enforcement uses of force against peaceful assemblies or compliant protesters constituted clear Fourth Amendment violations.²³⁸ In other cases, courts concluded that the degree or amount of force used against protesters violated clearly established Fourth Amendment standards.²³⁹ These decisions account for the lower defense success rates regarding excessive force claims at summary judgment.

iii. Fourth Amendment Law and Protesters’ Rights

Substantive Fourth Amendment law in the context of public protest has developed slowly in lower courts. Like the discussion of First Amendment law, the following analysis focuses primarily on published federal courts of appeals decisions to assess what substantive Fourth Amendment law has been established. However, it also considers district court decisions that apply circuit precedents in Fourth Amendment qualified immunity determinations.

Appellate courts consistently held that arresting protesters without actual or arguable probable cause violated clearly established Fourth Amendment law.²⁴⁰ They also concluded that it is a clear violation of the Fourth Amendment to arrest protesters without first issuing a dispersal order (although one district court held that officers are under no obligation to determine whether the order is lawful prior to enforcing it).²⁴¹ Notwithstanding these limits, courts applied a flexible probable cause standard and upheld arrests for various offenses, some very minor—using noise amplification near an abortion clinic,²⁴² falling asleep in a zipped tent in a public park,²⁴³ openly carrying firearms on a public fishing pier,²⁴⁴ burning the Mexican flag in public without a permit,²⁴⁵ and unfurling a banner outside a designated “speech zone.”²⁴⁶

Fourth Amendment law is unsettled when it comes to the validity of protesters’ arrests for engaging in protected expression. The Eighth Circuit held that arresting protesters solely for engaging in protected speech violates clearly established Fourth Amendment rights.²⁴⁷ Similarly, the Sixth Circuit held that the law was clearly established that a county fair patron could not be arrested for disorderly conduct based on his spewing profanities at police and a fairgrounds executive director when he was being escorted off the fairgrounds (apparently for wearing a shirt stating “Fuck the Police”).²⁴⁸

However, a federal district court applying circuit law concluded that officers who arrested a protester for anonymous comments made by others on his livestream after he posted the Chief of Police’s address did not violate clearly established Fourth Amendment law.²⁴⁹ Another district court held that officers did not act recklessly, negligently, or unreasonably in relying on a fellow officer’s determination that probable cause existed to arrest a protester for walking along the public sidewalks displaying “a gigantic Styrofoam middle finger emblazoned with the letters ‘Fuck cops.’ ”²⁵⁰ A district court also held that officers did not violate clearly established Fourth Amendment law when they arrested a protester for “interference” when he refused to relinquish a camera—something he otherwise had a right to possess under the circumstances—when ordered to do so.²⁵¹

As these decisions demonstrate, probable cause reasonableness standards make it difficult for courts to develop clearly established law concerning false arrest. As in other areas, egregious mass arrests and other actions not supported by any probable cause have been condemned as violating clearly established Fourth Amendment law. However, precedents show that even arrests closely related to, if not directly based on protected expression, have been the basis for qualified immunity for Fourth Amendment claims. The absence of precedents addressing similar or nearly identical circumstances has prevented courts from recognizing some clear constitutional violations.

In terms of excessive force claims, courts have consistently held that using less-lethal force, such as pepper spray and tear gas, against compliant and peaceful protesters violates clearly established Fourth Amendment law.²⁵² The same goes for using other types of force when arresting or subduing a compliant protester.²⁵³ Driving a train into a crowd of peaceful demonstrators may constitute excessive force, although the only decision reaching that conclusion is unpublished.²⁵⁴

However, as was true of some First Amendment claims, excessive force results sometimes hinged on whether the protest was wholly peaceful and non-disruptive. Courts held that the use of less-lethal munitions to disperse violent or unruly protests, tasing protesters in the context of “hostile” protest environments, and even kicking or choking protesters who refused to comply with officers’ commands did not constitute excessive force under the Fourth Amendment.²⁵⁵

Several district courts also rejected excessive force claims concerning the use of handcuffs or zip ties so tight they caused physical injuries to protesters. In some cases, courts reasoned that under circuit precedent, only force sufficient to break a person’s wrist violated clearly established Fourth Amendment law.²⁵⁶ The handcuffing/zip tie decisions demonstrate how the requirement that plaintiffs identify controlling precedent with the same facts undermines constitutional rights and prevents plaintiffs from being compensated for injuries. Absent a particular circuit court or Supreme Court decision (or perhaps more than one) holding that inflicting pain through bindings short of breaking the person’s wrist violates the Fourth Amendment, a protester plaintiff cannot recover even for serious injuries.

Several decisions in the Qualified Immunity dataset addressed the law as it relates to seizures under the Fourth Amendment. Some courts have held that warrantless seizures of protesters’ signs and other possessions violated the Fourth Amendment.²⁵⁷ By contrast, when officers had probable cause to believe the item was unlawful, or reasonable suspicion it could be dangerous, courts have upheld seizures of items including shofars and firearms.²⁵⁸ The fact that a shofar could “reasonably” be considered dangerous highlights the deference officers enjoy under Fourth Amendment cause and suspicion standards.

District courts applying circuit precedents disagreed concerning whether law enforcement uses of less-lethal weapons such as tear gas, pepper spray, and projectiles constituted “seizures” under the Fourth Amendment.²⁵⁹ Some decisions suggested that the answer turns on whether the protester’s movement was otherwise constrained, which implies that the use of less-lethal munitions by itself does not constitute a “seizure.”²⁶⁰ Other courts expressly held that the use of tear gas and other munitions can constitute a “seizure.”²⁶¹ At present, there is a lack of consensus or appellate authority on this important issue.²⁶²

Courts have also upheld brief detentions and searches incident to detention during public protests.²⁶³ They considered such actions justified as means of maintaining public safety and order. In some decisions, courts again relied on narrow factual distinctions relating to the detentions in determining whether they violated clearly established law. For example, although prior precedents in a circuit had established that a two-hour detention in which the plaintiff was handcuffed and detained in the back of a police cruiser was an unlawful seizure, a district court observed that in the case before it, protesters were not handcuffed, were not placed in the back of police vehicles, and were released after approximately one hour.²⁶⁴ Thus, the district court held, circuit precedents did not make clear to “every reasonable official” that detaining witnesses to a crime, without handcuffs and without moving them to a police vehicle, violated the Fourth Amendment.²⁶⁵

Fourth Amendment qualified immunity decisions exhibited some of the same pathologies as First Amendment decisions. While courts condemned some egregious law enforcement practices, they declined to recognize others as violations of clearly established law. Courts relied on narrow factual distinctions and the absence of controlling authority. Together the decisions have resulted in a largely under-developed law of public protest in the Fourth Amendment area.

B. Municipal Liability – Monell Claims

The Qualified Immunity dataset also collected information about plaintiffs’ claims against municipal defendants. Recall that to successfully hold a municipal defendant liable under section 1983, plaintiffs must demonstrate that the municipality directly violated their constitutional rights by, among other things, adopting and enforcing an unconstitutional “policy or custom.”²⁶⁶ In order to sue the municipality, plaintiffs must demonstrate that an official has violated their constitutional rights because of the municipal policy or custom.²⁶⁷

As shown in Figure 9, defendants were not successful at the motion to dismiss stage, as courts granted or upheld only eighteen of seventy-five (24%) dismissal motions. However, once cases reached the summary judgment stage, defendants were remarkably successful: 78% (113 out of 145) of municipal defendants’ motions for summary judgment were granted or upheld on appeal. Thus, although courts were inclined to allow plaintiffs to pursue discovery on Monell claims, they were overwhelmingly rejected at summary judgment.

Figure 9. Defense Motion Success Rates for Monell Claims

The data show that in most instances, municipal liability was rejected, owing to a lack of evidence of a “policy or custom.” Courts also frequently relied on a lack of underlying constitutional violation and plaintiffs’ failure to identify a policymaking official who acted in a manner that violated their constitutional rights.

Although municipalities represent deep financial pockets and are responsible for making law enforcement and other policies, the data confirm that Monell claims are among the most difficult for plaintiffs to pursue. Defendants’ efforts to defeat these claims were largely successful.

C. First Amendment Retaliation Claims

As discussed earlier, in Nieves, the Supreme Court adopted a probable cause standard for determining whether plaintiffs could bring a First Amendment retaliation claim.²⁶⁸ It also recognized a narrow exception for plaintiffs who could demonstrate they had been subject to unequal treatment. Concurring and dissenting Justices sounded various alarms about the Court’s reliance on probable cause. In general, the Retaliation Claim dataset, which includes all public protest retaliation claims subject to the Nieves standard, supports the dissenters’ objections and concerns.

A significant concern is that law enforcement officers possess broad discretion to charge protesters with even minor public disorder offenses. Under Nieves, an officer who can show a protester’s arrest for disorderly conduct, breach of peace, or other minor crimes is likely to have a complete defense to a First Amendment retaliatory arrest claim. As Justice Gorsuch observed in his partial dissent:

History shows that governments sometimes seek to regulate our lives finely, acutely, thoroughly, and exhaustively. In our own time and place, criminal laws have grown so exuberantly and come to cover so much previously innocent conduct that almost anyone can be arrested for something. If the state could use these laws not for their intended purposes but to silence those who voice unpopular ideas, little would be left of our First Amendment liberties, and little would separate us from the tyrannies of the past or the malignant fiefdoms of our own age. The freedom to speak without risking arrest is ‘one of the principal characteristics by which we distinguish a free nation.’²⁶⁹

Justice Gorsuch noted an additional shortcoming of the majority’s approach. When it folded the free speech claim into the unreasonable arrest inquiry, he asserted, the Court made a category error. As Justice Gorsuch explained, “the First Amendment operates independently of the Fourth and provides different protections. It seeks not to ensure lawful authority to arrest but to protect the freedom of speech.”²⁷⁰ By hanging so much on probable cause to arrest protesters and other speakers, the Court elided important free speech claims and interests.

In her dissent, Justice Sotomayor took aim at the exception to the Nieves rule, which requires protesters to produce “objective evidence that [they were] arrested when otherwise similarly situated individuals not engaged in the same sort of protected speech had not been.”²⁷¹ She characterized the exception as unclear and irrational and argued it will lead to perverse results. Which protesters, she asked, are “otherwise similarly situated” to the plaintiff, and who is engaged in the “same sort of protected speech”?²⁷² Further, under the Court’s approach, protesters who have more direct evidence of retaliatory motive, including officers’ own statements, cannot rely on that evidence, but must instead produce hard-to-come-by comparison-based evidence.²⁷³

Justice Sotomayor surmised that plaintiffs who can satisfy the Nieves exception “predominantly will be arrestees singled out at protests or other large public gatherings, where a robust pool of potential comparators happens to be within earshot, eyeshot, or camera-shot.”²⁷⁴ However, she failed to consider that even those plaintiffs would be hard-pressed to gather such evidence in chaotic mass protest environments. Among other complications, during mass protests, ideological and other affiliations can be difficult to discern. Moreover, the exception incentivizes protest policing activities that data show to be already prevalent, including “herding” or “kettling” all participants regardless of specific offense, using tear gas and other force indiscriminately, and engaging in mass arrests. No officer can be accused of singling anyone out if everyone is subject to the same dragnets and other abuses. For a few reasons, there will, as Justice Sotomayor warned, be “little daylight between the comparison-based standard the Court adopts and the absolute bar it ostensibly rejects.”²⁷⁵

Finally, Justice Sotomayor worried that the majority’s approach would “breed opportunities for the rare ill-intentioned officer to violate the First Amendment without consequence—and, in some cases, openly and unabashedly.”²⁷⁶ For example, “a particularly brazen officer could arrest on transparently speech-based grounds and check the statute books later for a potential justification.”²⁷⁷ She and the other dissenters might also have raised the possibility that racial disparities in protester arrests might affect First Amendment retaliation claims.²⁷⁸

The Retaliation Claim dataset confirms many of the dissenters’ objections and concerns. Counting Nieves itself, there have been forty-one federal court decisions that applied the probable cause defense in protest-related cases. In twenty-seven of those decisions, or more than 65%, courts granted defendants’ motions to dismiss or for summary judgment with respect to First Amendment retaliation claims. An “absolute bar” may not have materialized. However, thus far, post-Nieves retaliation claims have not fared well at all in reported decisions. Courts granted or upheld dismissal at the pleading stage 56% of the time (10/18) and granted summary judgment to defendants 74% (17/23) of the time.

Table 3. Defense Motions in Post-Nieves Retaliation Cases
Posture	Motion Granted	Motion Denied	Total
MTD	10 (56%)	8 (44%)	18
SJ	17 (74%)	6 (26%)	23

The nature of the charges underlying dismissal or summary judgment substantiates Justice Gorsuch’s concern that “criminal laws have grown so exuberantly and come to cover so much previously innocent conduct that almost anyone can be arrested for something.”²⁷⁹ The criminal charges that ultimately defeated First Amendment retaliation claims included disorderly conduct (6), trespass (5), failure to disperse (4), disturbing the peace (3), violation of a curfew order (2), obstructing vehicular or pedestrian traffic (3), obstructing government functions (1), and jaywalking (1). As Justice Gorsuch predicted, probable cause to arrest protesters for even very minor or trivial offenses was enough to defeat the retaliation claims.

What about the exception based on evidence of unequal treatment? Courts addressed the exception on the merits in only 24% (10/41) of cases. In six of those decisions (60%), courts concluded there was insufficient evidence of unequal treatment or that the plaintiff was not “similarly situated” to the comparator class. In three decisions, courts concluded there were sufficient allegations or evidence of disparate treatment to defeat defendants’ motions to dismiss or for summary judgment. In one decision, the court concluded that the plaintiff had produced evidence that “similarly situated” speakers had not been arrested under the narrow exception Nieves recognized.²⁸⁰ In that case, plaintiffs demonstrated that no one had ever been arrested for the offense (chalking public property).²⁸¹

The post-Nieves results suggest courts are engaging in a wooden application of the probable cause standard, rather than a “commonsensical[]” analysis.²⁸² They have generally been willing to accept officers’ claims that arrests for minor offenses were reasonable under the circumstances, a conclusion that in most cases defeated protesters’ First Amendment retaliation claims.

Review of post-Nieves decisions also supports other criticisms. Justice Gorsuch criticized the majority opinion in Nieves for failing to recognize the First Amendment and Fourth Amendment as independent sources of rights.²⁸³ As he predicted, Nieves has encouraged lower courts to focus on the legitimacy of the arrest to the exclusion of free speech, press, and assembly concerns.²⁸⁴ While courts have been hyper-focused on probable cause to arrest, they have had little to say about the effects of the arrests on collecting petition signatures, public preaching and singing, videorecording protest arrests, and participation in protests involving LGBTQ rights, Occupy Wall Street, the Dakota Access Pipeline, Black Lives Matter, Juneteenth, and the removal of Confederate monuments.

The data do not provide a basis for assessing Justice Sotomayor’s concern about rogue officers suppressing speech. However, post-Nieves decisions have dismissed retaliation claims in which protesters were arrested while singing anti-LGBT songs, confronting public officials at public events, and videotaping protest policing. In these and other cases, there is at least the possibility that officers have targeted or suppressed speech based on its content.

Finally, commentators have warned that Nieves may have negative effects on newsgatherers.²⁸⁵ Even if reporters have a First Amendment right to record government officials at public demonstrations, the decisions show that probable cause to arrest reporters for some minor offense may effectively negate press rights by allowing officials to target newsgatherers.

Prior to Nieves, the Supreme Court recognized another possible exception to the probable cause requirement. If a municipality adopts an official policy of retaliation against a speaker or group, the Court held, it may be held liable even if there is probable cause to arrest the speaker.²⁸⁶ Assuming this exception survives Nieves, it applies only in exceptional situations when a governmental body adopts a policy of retaliating against an individual or group for protected expressive activities.²⁸⁷

The Retaliation Claims dataset suggests plaintiffs are not likely to pursue this type of claim. Only five of the forty-one decisions (12%) addressed such a claim. Three claims were dismissed for failure to allege or provide sufficient evidence of a policy or custom of retaliation or failure to establish an underlying constitutional violation.²⁸⁸ One district court concluded that the plaintiff had alleged sufficient facts in the complaint to demonstrate a policy or custom of retaliation or harassment.²⁸⁹ Another district court concluded genuine issues of material fact concerning whether a defendant had final policymaking authority precluded summary judgment on the municipal retaliation claim.²⁹⁰

Lower courts have not had much time to adjust to and apply the Nieves standard. However, evidence indicates that concerns about how the probable cause and other aspects of the decision will be applied have already surfaced in early cases.

D. Claims Against Federal Officials

As discussed, the Supreme Court has never formally recognized a First Amendment claim under Bivens for monetary damages against federal officials.²⁹¹ Recent decisions have expressed general skepticism concerning Bivens claims and rejected certain types of claims under the First Amendment and the Fourth Amendment.²⁹² The twenty-six decisions included in the Bivens Claims dataset suggest that while lower courts have long recognized protest-related claims against federal officials, the Supreme Court’s recent decisions have placed such claims in jeopardy.

The data show that lower courts have long recognized protesters’ ability to pursue First Amendment and Fourth Amendment Bivens claims. Courts recognized a cause of action for First Amendment or Fourth Amendment violations against federal defendants under Bivens in 81% (21/26) of protest-related decisions.

However, twelve, or nearly half, of these decisions are from the D.C. Circuit and D.C. district courts. The D.C. Circuit first recognized a First Amendment protest-related Bivens claim in Dellums v. Powell, which was decided in 1977.²⁹³ The District of Columbia is the site of iconic protest venues, including the grounds near the U.S. Capitol and Lafayette Park near the White House. National Park Service, U.S. Marshals officials, U.S. Capitol Police, Secret Service, and other federal officials are involved in policing and managing mass and other protest events in the District.

In addition to the D.C. Circuit, the Third, Fourth, Eighth, Ninth, and Tenth Circuits have also recognized First Amendment and Fourth Amendment Bivens claims in protest-related cases.²⁹⁴ Constitutional claims in these cases have run the gamut from violation of protesters’ right to speak and assemble in a public forum under the First Amendment to allegations of excessive force, false arrest, and unreasonable seizure under the Fourth Amendment. One might assume decisions recognizing these Bivens claims long predated the Court’s recent turn against expanding Bivens. However, ten out of fifteen lower court decisions (67%) recognizing such claims or assuming they are viable were decided during the last decade, when the Court was expressing increasing skepticism about them.

There is some evidence that the Court’s Bivens negativity is starting to affect lower court decisions in protest cases. In the four most recent decisions, including one by the D.C. Circuit regarding the clearing of Lafayette Park during the 2020 Black Lives Matter protests, courts expressly rejected protesters’ First Amendment and Fourth Amendment Bivens claims.²⁹⁵ The courts emphasized the Supreme Court’s admonition not to expand Bivens into “new” contexts and to apply a “special factors” analysis to prevent expansion of Bivens claims. Applying those standards, only one recent federal district court decision has upheld a protest-related Fourth Amendment claim and none have recognized a First Amendment claim.²⁹⁶

The loss of a Bivens remedy would leave protesters without full recourse against federal officials who violate their First Amendment or Fourth Amendment rights. Officials with the National Park Service, Secret Service, and other federal agencies would be immunized from damages claims. As the 2020 racial justice protests demonstrated, holding federal officials liable for protest policing that violates individuals’ constitutional rights remains critically important.

IV. STRENGTHENING PROTESTER RIGHTS AND REMEDIES

This study confirms that protesters face steep obstacles in terms of holding government officials accountable for constitutional injuries. If protesters cannot be made whole in the event of serious injuries, they may be deterred from organizing and participating in public demonstrations. Thus, what is at stake is not just the important compensation owed to injured protesters but also broader injuries to our culture of public dissent. This final Part offers five proposals to strengthen protesters’ rights and remedies.²⁹⁷

First, as other scholars have advocated, qualified immunity should be abandoned or reformed.²⁹⁸ This study confirms that courts are disposing of a significant percentage (approximately 60% at summary judgment) of protesters’ First Amendment and Fourth Amendment claims based on qualified immunity. The data also show that qualified immunity shields officials from liability in all but the most egregious cases (and even in some egregious cases), is based on an impossibly narrow standard of controlling authority and reduces opportunities for courts to innovate and develop substantive law. The Court or Congress should abolish qualified immunity or reform it by, for example, changing the liability standard or doing away with the “clearly established law” requirement.²⁹⁹ Protesters and others would then be better able to recover for patently unconstitutional content-based regulations, abusive uses of force, invalid arrests, and other unconstitutional behavior.

Second, also in the realm of qualified immunity reform, the Supreme Court or Congress should revisit Nieves v. Bartlett. This study shows that First Amendment retaliation claims are frequently pursued in protest cases. Early lower court applications of Nieves’s probable cause rule confirm the objections raised by Justices Gorsuch and Sotomayor. The Supreme Court should at least clarify that probable cause is not an absolute bar to retaliation claims. Some commentators have also urged Congress to overturn Nieves.³⁰⁰ If neither institution is willing to act, civil rights lawyers will need to focus on collecting the necessary evidence of disparate treatment to defeat the probable cause bar. As Justice Sotomayor has urged, lower courts can also adopt a “commonsensical[]” interpretation of the standard.³⁰¹

Third, as this study confirms, courts need to strengthen constitutional protections under the First Amendment and Fourth Amendment. The lack of strong First Amendment and Fourth Amendment rights reduces and undermines protesters’ constitutional protections. Applications of qualified immunity doctrine show that First Amendment doctrines allow officials to exclude protesters from public properties, enforce restrictive speech zones, and significantly displace demonstrations. Joanna Schwartz has criticized substantive Fourth Amendment law, specifically the “reasonableness” standard that allows officers to “stop, arrest, beat, shoot, or kill people who have done nothing wrong without violating their constitutional rights.”³⁰² Similarly, she argues, the Court’s “excessive force” doctrine has “left officers with few limits on their power.”³⁰³ The First Amendment and Fourth Amendment doctrines addressed in this study are longstanding. However, the Supreme Court should more clearly establish the limits they place on government officials when they regulate protest activity and lower courts should apply these limits in ways that better protect the rights of protesters.

Fourth, and relatedly, courts must publish more decisions elaborating on applications of First Amendment and Fourth Amendment rights. Figure 10 shows the number of published qualified immunity protest-related decisions over time available on Westlaw. The Qualified Immunity dataset covers four decades but includes only eighty-six published federal appellate court decisions. To be sure, there are likely more such decisions; but if they are not accessible, they cannot be used to analyze qualified immunity. If published appellate decisions are to be the primary sources of clearly established law, it is obvious that litigants and courts need significantly more guidance. The uptick in published decisions during the last five years is encouraging, even if it may partially be related to the 2020–2021 mass street protests. More published decisions should produce more clearly established limits on protest policing and other activities. The Supreme Court could also take steps such as loosening the requirement of controlling circuit precedent and allowing courts to consult other decisions or to rely on general principles, rather than requiring plaintiffs to identify in-circuit cases involving the same or similar factual circumstances.

Figure 10. Published Qualified Immunity Protest Decisions over Time

Fifth, and finally, governmental immunity doctrines must allow injured plaintiffs to hold all parties that cause injuries accountable. This means reducing or repealing municipal immunities and allowing injured protesters to sue federal officials under Bivens for First Amendment and Fourth Amendment violations. In my study, although plaintiffs frequently sued municipalities, nearly 80% of their Monell claims failed at summary judgment.³⁰⁴ As Joanna Schwartz has argued, “[o]ne way to make sure that people are paid what they are owed is to do away with Monell standards and hold cities legally responsible for the constitutional violations of their officers—just as private companies are held vicariously liable for the acts of their employees.”³⁰⁵ Protester plaintiffs must also have the opportunity to hold Secret Service, National Park Service, and employees of other federal agencies accountable. Lower courts have traditionally perceived no impediment to recognizing and adjudicating such claims.³⁰⁶ As some recent decisions demonstrate, the Supreme Court’s negativity regarding Bivens threatens to undermine the fundamental right to express political dissent.³⁰⁷ Although the Supreme Court has not expressly rejected protest-related First Amendment claims against federal officials, it has crept ever closer to doing so. As the Court itself has urged, Congress should codify Bivens by creating civil damages claims against federal officials who violate First Amendment, Fourth Amendment, and other constitutional rights.

CONCLUSION

Governmental immunities have had a profoundly negative effect on public protesters’ ability to obtain compensation for constitutional harms. This study’s quantitative analysis shows defendants’ significant success using qualified immunity to defeat a variety of First Amendment and Fourth Amendment claims. Its qualitative analysis illustrates how application of qualified immunity and other doctrines have defeated protesters’ claims, even when defendants have engaged in egregious constitutional violations.

The study lends additional support to general criticisms of qualified immunity and related doctrines. More broadly, it shows that failure to reform or abolish governmental immunities will affect the right to protest peacefully, safely, and with high confidence that officials who regulate and police protests will respect constitutional rights.

This Article offers several proposals for strengthening protesters’ remedies or at least limiting obstacles to monetary recovery. These include judicial or legislative repeal of qualified immunity, developing stronger substantive First Amendment and Fourth Amendment protections, abandoning municipal liability restrictions, and retaining civil liability for federal officials. Without serious reform, in most cases protesters will continue to be un- or under-compensated, public officials will continue to escape liability, and traditionally valued public protest activity will be encumbered and chilled.

97 S. Cal. L. Rev. 1583

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Timothy Zick*

* John Marshall Professor of Government and Citizenship, William & Mary Law School. I would like to thank Paul Hellyer for his outstanding assistance with the study design and the research supporting this Article. Special thanks also to Rebecca Roberts for her help updating the study databases. Any errors are, of course, my own.

Rethinking Tax Information: The Case for Quarterly 1099s

October 2024October 2024Kathleen DeLaney Thomas*

When an electricity provider wants customers to pay their bills monthly, it sends them a bill each month. Yet, this is not how the tax system works—at least not for independent contractors. Their taxes are due quarterly, but they receive a tax statement (Form 1099) only one time a year. It is up to the individual, then, to know when their taxes are due and how to pay them, and it is on that individual to estimate how much they owe each quarter. As a result, compliance for independent contractors—particularly for online platform workers—tends to be lacking. Failure to pay their estimated taxes subjects these taxpayers to potential penalties and causes the government to collect less tax revenue.

There is a simple—yet entirely overlooked—reform that could vastly improve compliance when it comes to paying estimated taxes: third-party information returns (Form 1099s) should be issued to taxpayers on a quarterly basis. The idea is straightforward and intuitive. If the government wants people to pay taxes four times per year, it needs to effectively “bill” them four times per year. This idea is supported by social science research showing that, the more taxpayers are reminded to pay their taxes, the more likely they are to do so.

This Article is the first to propose quarterly tax information returns. It offers a detailed proposal for a new Form 1099-ES, which would communicate quarterly earnings and provide guidance on how much to pay in estimated taxes. In doing so, this Article argues for rethinking the conventional wisdom surrounding tax information, taking a more taxpayer-focused approach. Rather than viewing Form 1099s solely as a source of information for the government to monitor taxpayers and deter cheating, we should also view the role of information returns as assisting taxpayers in tracking their income and estimating their tax liability. When viewed in this light, the goal should not necessarily be more year-end returns to more people, but instead should be more frequent and useful information for taxpayers.

INTRODUCTION

When an electricity provider wants customers to pay their bills monthly, it sends them a bill each month. It would border on the absurd to do it differently. But imagine if an electricity provider wanted customers to pay their bill every month, yet it sent only one bill at the end of the year showing the customer’s total electricity use. This would certainly cut down on billing costs for the company, but at a steep price. People would undoubtedly miscalculate their monthly bills, pay the bills late, or forget to pay the bills altogether. Thus, unsurprisingly, whether it is utility companies, mobile phone service providers, or credit card companies, businesses that want to be paid monthly bill their customers monthly, often sending multiple reminders. Those communications not only remind customers to pay, but they also provide instructions—such as a link to an online payment website or a pre-addressed envelope—to make it as easy as possible.

Yet this is not how the tax system works, at least not for independent contractors. Their taxes are due quarterly, but they receive a tax statement only one time a year.¹ By the time independent contractors receive a Form 1099 reporting their earnings, typically in February of the following year, all four quarterly tax payment deadlines have come and gone.² It is up to the individual, then, to know when their taxes are due and how to pay them, and it is on that individual to estimate how much they should pay in taxes each quarter.

The significance of this asymmetry cannot be understated: the government expects taxpayers to take affirmative steps to make a tax payment four times per year, yet the government requires taxpayers receive information (through a third-party Form 1099) only once a year. It is, therefore, entirely unsurprising that compliance for independent contractors, particularly for online platform workers, is lacking.³ Studies indicate significant noncompliance when it comes to paying estimated taxes, which subjects these taxpayers to potential penalties and causes the government to collect less tax revenue.⁴

There is a simple—yet entirely overlooked—reform that could vastly improve compliance when it comes to paying estimated taxes: third-party information returns (Form 1099s) should be issued to taxpayers on a quarterly basis. This new quarterly information return—what this Article calls “Form 1099-ES”—should communicate the taxpayer’s quarterly earnings and provide clear instructions for how to make estimated tax payments, including guidance on how much to pay.⁵ The idea is straightforward and intuitive. If the government wants people to pay taxes four times per year, it needs to effectively “bill” them four times per year. Further, this idea is supported by recent social science research. That research shows that informational “nudges” are effective at motivating individuals to act, including paying their taxes on time.⁶ In other words, the more taxpayers are reminded to pay their taxes and the easier the process is, the more likely they are to do so.

This Article is the first to propose quarterly information returns. It urges Congress to require quarterly 1099s be sent to online platform workers who are already receiving an annual Form 1099-K, but who otherwise receive no assistance in making estimated tax payments.⁷ In doing so, this Article argues for rethinking the conventional wisdom surrounding tax information, taking a more taxpayer-focused approach.

Traditionally, scholars and policymakers have viewed third-party information returns, such as a Form 1099-K, as having two main functions, both of which aid Internal Revenue Service (“IRS”) enforcement efforts.⁸ One function is to tell the IRS what the taxpayer has earned. The second function is to serve as a deterrent. If taxpayers know the IRS is going to receive information about their income from third parties, they are far more likely to report their income accurately.

Recent expansions to Form 1099 reporting reflect this traditional view of information returns. In 2021, Congress passed legislation requiring online platforms, such as Venmo, PayPal, Airbnb, and Etsy, to send a Form 1099-K to taxpayers earning more than $600 of business income during the year through those platforms.⁹ This was a substantial change from the prior threshold of $20,000 and was designed specifically to raise revenue by subjecting more taxpayers to information reporting.¹⁰ Some critics of the new legislation have questioned whether the IRS has sufficient capability to process the influx of new information returns, while others have lamented that the new rules will lead to taxpayer confusion, anxiety, and possible over-reporting of tax liability.¹¹

While the efficacy of the new Form 1099-K reporting threshold remains to be seen, the rule reflects the overall trend in improving tax compliance over the past half a century: more year-end tax forms to more taxpayers. In gradually expanding information reporting requirements over the past several decades, the government has cast an increasingly wider net. But this wider net has come with virtually no safeguards for the taxpayers newly covered by information reporting.

This Article urges policymakers to look beyond the traditional policing function of 1099s and proposes a third, equally important function of information reporting. Rather than viewing 1099s solely as a source of information for the government to monitor taxpayers and deter cheating, we should also view the role of information returns as assisting taxpayers in tracking their income and estimating their tax liability. When viewed in this light, the goal should not necessarily be more year-end returns to more people, but instead should be more frequent information to taxpayers who are already obligated to report taxable income. The current system, in which taxpayers do not receive information until their deadlines to pay quarterly taxes have come and gone, falls woefully short.

This Article’s ultimate argument is that rethinking tax information means harnessing the ability of third parties to quickly process and distribute tax information in ways that will first and foremost help taxpayers. The cost to third parties of sending these quarterly statements to taxpayers would be minor, and it would impose no additional administrative costs on the IRS. (The IRS would continue to receive the taxpayer’s Form 1099 at the end of the year, but only the taxpayer would receive it quarterly.)

Rethinking the role of tax information as assisting taxpayers in meeting their payment obligations not only protects taxpayers from penalties and other burdens, but it should also result in higher tax compliance and more revenue raised. In other words, rethinking tax information in this way would only strengthen and enhance the traditional goals of information reporting.

This Article proceeds in four parts. Part I provides background on tax information reporting and surveys recent legislative changes to expand Form 1099 reporting. It also discusses the benefits and risks of expanding year-end information reporting. Part II explores the challenges faced by independent contractors like online platform workers in making timely tax payments. Part III then explores social science literature supporting the idea that, the more tax communications taxpayers receive, the more compliant they will be. Part IV offers a concrete proposal for quarterly information returns for platform workers (a new Form 1099-ES), including how to best design these returns to maximize accurate and timely tax payment. Part IV also proposes a simple safe harbor formula for calculating estimated tax payments: five percent of gross payments. The safe harbor would allow taxpayers to quickly and easily figure out how much to pay each quarter to avoid estimated tax penalties.

Quarterly information returns are a viable solution to a problem that has taken on increasing significance in recent years due to a growing gig economy and rising number of independent contractors. Mandating that certain businesses send their workers a Form 1099 every quarter would impose tax compliance costs on those entities that are best suited to handle those costs efficiently. At the same time, this reform would make the tax system more equitable for lower income workers who struggle to meet their tax compliance burdens.

I. THIRD-PARTY INFORMATION REPORTING: BACKGROUND AND CONSIDERATIONS

This Part offers a brief overview on the current law regarding third-party information reporting and tax payment obligations. As this Part explains, information reporting is a vital tool that ensures tax compliance and aids in the government’s collection of revenue.

A. What Is Third-Party Information Reporting?

The United States tax system is generally based on “voluntary compliance,” meaning the government relies on taxpayers to voluntarily self-report their taxable income each year on their tax return.¹² However, the most important way in which the government ensures that taxpayers report their income accurately is third-party information reporting.¹³ Third-party information reporting describes a system in which a third party (that is, not the taxpayer or the IRS) reports the taxpayer’s income on an information return.¹⁴ The third party is often (though not always) the same person or entity that pays the income to the taxpayer. That information return, such as a Form W-2 or Form 1099, is sent to both the taxpayer and to the IRS after the end of the year.¹⁵ The IRS then uses the form to monitor whether the taxpayer has accurately reported the income on their tax return, often through an automated process.¹⁶

Whether income is subject to third-party information reporting depends on the source of the income and how much the taxpayer earns. Employee wages are generally reportable on Form W-2 and are also subject to withholding.¹⁷ Other forms of income, such as interest, dividends, and sales of securities by brokers, as well as certain payments to independent contractors, are reportable on a Form 1099 (though not subject to withholding).¹⁸

B. Purpose and the Benefits

In ensuring that taxpayers report and pay their taxes, the government’s primary challenge is information asymmetry: taxpayers have more information about their income than the IRS. The most powerful mechanism to correct this asymmetry, thereby ensuring that most income gets reported accurately, is third-party information reporting.¹⁹ IRS compliance statistics bear this out. The overall rate of compliance in the United States, measured by the ratio of taxes collected versus taxes owed, is about 85%.²⁰ Much of that high compliance rate is attributable to income that is subject to information reporting.²¹

For employee wages, which are both reported on a Form W-2 and subject to withholding, compliance is nearly perfect (99%).²² Income that is not subject to withholding but subject to substantial information reporting, such as interest and dividends, is also reported accurately at very high rates (94%).²³ On the other hand, compliance is significantly lower when information reporting is not present. The IRS estimates the compliance rate for income not subject to information reporting to be 45%, meaning less than half of such income gets reported by taxpayers.²⁴ Simply put, taxpayers are much more likely to report income that gets reported to the IRS by a third party and are more likely to cheat when their income is not being reported by a third party.

These statistics demonstrate that information reporting is highly effective at achieving its intended purpose of ensuring tax compliance. Commentators note two reasons that information reporting is so effective. First, providing the IRS with information about taxpayers allows the agency to pursue those who underreport their income.²⁵ Much of this matching of information returns with taxpayers’ tax returns is done automatically through IRS computer programs.²⁶ Second, information reporting acts as a deterrent because taxpayers likely know the IRS is receiving information about their income.²⁷ Professor Leandra Lederman compares this effect to red light cameras that catch drivers running red lights: “[T]he taxpayer is aware the government is watching.”²⁸

C. Information Reporting for Platform Workers

Two information-reporting provisions are particularly relevant for taxpayers earning income through online platforms, who are the focus of this Article. First, certain payments made to independent contractors are reportable on Form 1099-MISC if the payments exceed $600 during the year.²⁹ More specifically, if a business pays an independent contractor more than $600 for the provision of services, the business must send the individual (and the IRS) a Form 1099-MISC.

In 2008, Congress expanded information reporting for some independent contractors that are paid through “third party settlement organizations” (“TPSOs”).³⁰ A TPSO generally serves as an intermediary to facilitate online transactions between buyers and sellers, charging a fee for its services.³¹ TPSOs include online payment platforms, like Venmo and PayPal, as well as other types of platforms on which taxpayers earn income from performing services or selling goods, like Uber or Etsy.³² The 2008 legislation required the online platform to issue a Form 1099-K to any taxpayer who was paid more than $20,000 and accumulated payments from more than 200 transactions on the platform during the tax year.³³ The higher $20,000 threshold “trumped” the $600 threshold under the 1099-MISC rules if both applied, meaning independent contractors paid through online platforms were subject to a much higher threshold for information reporting.³⁴

Commentators criticized this disparity in the information reporting thresholds—$600 versus $20,000/200 transactions—as confusing and arbitrary.³⁵ For example, if a painter was paid $5,000 by a business for a job, they would receive a Form 1099-MISC. But if a painter was hired and paid through an online platform like TaskRabbit, the Form 1099-K rules only required information reporting if that painter earned over $20,000 through the platform and had over 200 payment transactions. As a result, many independent contractors earning income through online platforms were not subject to any information reporting at all, because they never met the high payment and transactions threshold.³⁶

In response to these criticisms, and due to growing concern about lack of tax compliance in the gig economy, Congress amended the reporting threshold for Form 1099-K in 2021.³⁷ The new rule, enacted as part of the American Rescue Plan, unified the reporting threshold between the 1099-MISC rules and the 1099-K rules.³⁸ Now, online platforms must issue a Form 1099-K to any taxpayer who earns more than $600 from the platform during the tax year; there is no minimum number of transactions required.³⁹ This new reporting threshold, which does not take effect until 2025, is expected to substantially increase the number of taxpayers subject to information reporting and raise an estimate $8.4 billion in additional revenue over the next decade.⁴⁰

Notwithstanding the revenue and compliance benefits from expanding Form 1099-K reporting to cover more platform workers, the new legislation has also been met with significant criticism from all sides. The biggest source of such criticism is that the new threshold casts too wide a net and will inadvertently capture transactions that are not subject to tax.⁴¹ Technically, the 1099-K rules only apply to business income and not personal transactions.⁴² For example, a painter earning fees on Venmo should receive a Form 1099 if total annual fees exceed $600. But if an individual collects contributions for a group gift on Venmo, those transactions should not be reportable because they are personal in nature. However, it is possible that TPSOs (like Venmo) will not be able to adequately distinguish which transactions are reportable and which are not, with the result that too many Forms 1099-K will be issued. This, in turn, is likely to cause confusion among taxpayers, who may mistakenly believe the Form 1099-K means they have to report a transaction even if that transaction is not taxable (for example, if it is a gift).⁴³

Another source of potential confusion is that Forms 1099-K generally report gross earnings, which may differ significantly from taxable income, particularly for taxpayers who engage in selling goods.⁴⁴ As an example, imagine a taxpayer knits scarves and sells them on Etsy. Further imagine this taxpayer spent $700 on materials during the year and earned $1,000 in gross sales through the platform. The taxpayer’s net income, after accounting for their costs, is only $300 ($1,000 minus $700), and therefore only $300 is reportable for tax purposes. But, under the new 1099-K rules, Etsy will issue the taxpayer a Form 1099-K reflecting $1,000 in sales, because that gross amount is over the threshold. Critics argue that taxpayers may fail to understand that, although their Form 1099 says $1,000, the taxpayer may report a lower amount of income on their tax return.⁴⁵ Commentators also argue that confusion about the new rules will deter taxpayers from participating in online marketplaces.⁴⁶

Even for taxpayers who understand that their Form 1099 shows income that is not taxable—either because the transaction is not taxable or because the Form 1099 reflects a gross income amount—there may be anxiety and confusion over how to reconcile the form with their tax return. Taxpayers may overreport their income just to avoid IRS scrutiny, or may have to incur the cost of a tax professional to ensure they are in compliance with the law.⁴⁷ The IRS has delayed enforcement of the new 1099-K rules by several years in response to these concerns, stating that the delay will help “reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation.”⁴⁸

Another line of criticism of the new 1099-K rules is that the IRS does not have the enforcement capacity to handle the new influx of information returns, many of which may not even pertain to taxable transactions.⁴⁹ For example, the Coalition for 1099-K Fairness argues:

[T]his new requirement will place a greater strain on the IRS, increasing processing delays for American taxpayers and small businesses. At the end of May 2022, the IRS had a backlog of 21.3 million unprocessed paper tax returns. . . . Because many of these casual sellers will not have taxable income resulting from these transactions, the burden on the IRS will not result in collection of additional tax revenue.⁵⁰

Finally, even those who support expanding information reporting for platform workers have argued that the $600 threshold is simply too low, reflecting a reporting threshold for independent contractors that dates back to the 1950s and has not been adjusted for inflation.⁵¹ In response to concerns about the threshold level, Congressional Democrats have introduced a bill to raise the threshold for 1099-K reporting to $5,000.⁵²

D. Lessons Learned from Recent 1099-K Reform

The recent change to the Form 1099-K rules offers a compelling illustration of the tradeoffs inherent in expanding information reporting. On the one hand, the lower threshold for online platforms was a long time coming. Scholars and organizations like the Government Accountability Office (“GAO”) had been urging Congress for years to lower the $20,000/200 transaction threshold to account for the fact that many platform workers were not receiving a Form 1099.⁵³ And, as discussed above, information reporting is vital to ensure that platform workers and other independent contractors report their income. But while increasing the number of taxpayers receiving 1099s will reduce evasion and enhance revenue collection, it comes at a cost of added complexity for taxpayers, who may not know how to report income reflected on a 1099.⁵⁴ Taxpayer confusion or mistakes also impose an increased enforcement burden on the IRS, as does processing additional 1099s.⁵⁵

In sum, the new Form 1099-K rule, which lowers the reporting threshold for payments from online platforms to $600, reflects the general trend in expanding information reporting over the past several decades.⁵⁶ That trend is to require more year-end 1099s, which means more taxpayers will receive them. But receiving a Form 1099 at the end of the year, by itself, does little to help platform workers fulfill their tax obligations if they don’t already have a good understanding of the tax law. The next Part explores the tax compliance challenges faced by online platform workers and other independent contractors.

II. THE PROBLEM: NONCOMPLIANCE AMONG INDEPENDENT CONTRACTORS

This Part provides background on the tax compliance obligations of platform workers and other independent contractors. As this Part shows, because they are not treated as employees for tax purposes, platform workers often face significant tax compliance burdens and may lack the expertise to fully comply.

A. Tax Compliance Obligations of Platform Workers

Online platform workers are generally treated as independent contractors, rather than employees, for tax purposes.⁵⁷ The tax consequences of this distinction are significant for the worker: while employees have their taxes withheld and paid by their employer, independent contractors are responsible for paying taxes on their own.⁵⁸ This means platform workers generally must budget for taxes and make estimated tax payments four times per year,⁵⁹ in addition to filing a year-end tax return and paying any additional balance due. Failure to make estimated tax payments can result in a tax penalty.⁶⁰

Taxpayers have two options to calculate their estimated tax payments in a manner that avoids penalties. First, they can pay 100% of their prior year’s tax liability through estimated taxes, and they will not face a penalty even if they end up owing more tax after the year is over.⁶¹ For example, if a taxpayer paid $5,000 in taxes in 2022, they can pay $5,000 during the course of 2023 through estimated taxes. Even if their total tax liability for 2023 is $8,000, and they owe another $3,000 at the end of the year, they will not face a penalty for failing to pay enough estimated tax. The other option is to pay enough estimated taxes to satisfy 90% of that year’s tax liability.⁶² This means that, for a taxpayer who owes $20,000 in tax at the end of 2023, they must have paid at least $18,000 during the year to avoid an estimated tax penalty. In any case, taxpayers are not subject to an estimated tax penalty if the total tax owed for the year is less than $1,000.⁶³

Independent contractors are also responsible for paying self-employment taxes on their net earnings. For employees, employment taxes are split between the employee and the employer, with employees bearing responsibility for a 7.65% tax on their wages⁶⁴ and employers bearing responsibility for another 7.65% on those wages.⁶⁵ In addition to paying half of the employment tax, the employer withholds the employee’s share of employment taxes and pays them to the IRS,⁶⁶ so the employee can effectively ignore these obligations. On the other hand, independent contractors are responsible for both portions shared by employers and employees, or a 15.3% self-employment tax on net earnings.⁶⁷ These workers must include payments for self-employment tax in their quarterly estimated tax payments.

Finally, in addition to paying quarterly taxes, which include both income and self-employment taxes, independent contractors must track their deductible business expenses and report them on Schedule C to their Form 1040.⁶⁸ This imposes further compliance costs and complexity compared to employees because workers must know which expenses are deductible, keep records to substantiate those expenses, and spend additional time preparing their year-end tax return (or spend money hiring a tax professional).

B. Many Platform Workers Struggle with Tax Compliance Obligations

The rise of online platforms has made it easier than ever before to become an independent contractor.⁶⁹ But this low barrier to entry means that many platform workers are young and financially inexperienced, particularly when it comes to managing tax obligations.⁷⁰ Even taxpayers with years of employment experience do not necessarily know how to manage the tax obligations associated with independent contractor status. For example, a survey of platform workers published in 2016 found that a third of such workers did not know whether they had to pay quarterly estimated taxes.⁷¹ Nearly half of the respondents also did not know how much they would owe in taxes and did not set aside money for taxes.⁷²

In a 2020 Report to Congress, the GAO documented the top tax compliance challenges faced by platform workers, which include understanding the tax responsibilities of independent contractors, receiving adequate information about their earnings (particularly when there is no Form 1099 reporting), and saving for and making quarterly estimated tax payments.⁷³ As to the third challenge, the report observes:

Because earnings of some platform workers may be low and earnings and expenses may fluctuate, they can have difficulty estimating their taxes owed and setting aside money to pay the taxes. . . . To the extent these burdens and difficulties confuse workers, they are less likely to pay the estimated tax payments fully and on time and may incur a penalty as a result. . . . [I]f the penalty or amount owed is more than workers can afford, they are at risk of falling into a cycle of noncompliance.⁷⁴

Researchers have also noted that another negative effect of failing to properly save for and remit estimated taxes relates to platform workers’ Social Security contributions. Not only does failing to fulfill their tax obligations subject workers to possible penalties and cause the government to collect less revenue, but workers also jeopardize their future Social Security benefits, as such benefits are based on previously reported earnings.⁷⁵ Further, platform workers who do not report their income (or do not report enough income) may also miss out on tax credits that could help them financially, such as the Earned Income Tax Credit.⁷⁶

C. Estimated Tax Penalties Have Increased with Rise of Platform Economy

As further evidence that platform workers are struggling with their tax compliance obligations, IRS data shows that the number of estimated tax penalties has increased substantially over the past two decades.⁷⁷ Specifically, the number of individual returns for which an estimated tax penalty was assessed has risen significantly alongside the expansion of the platform economy.⁷⁸ For example, in 2012, 7.1 million individual estimated tax penalties were assessed, while in 2022, 12.2 million estimated penalties were assessed, representing a 72% increase.⁷⁹ While other factors may play a role in the number of estimated tax penalties assessed, the general trend is consistent with the growth in online platform work.⁸⁰ It is worth repeating that when platform workers fail to pay estimated taxes, it not only deprives the government of tax revenue, but also harms the worker, because they may find themselves subject to back taxes and penalties they cannot afford.⁸¹

Figure 1 shows the total number of individual estimated tax penalties assessed from 2000 to 2022, with a notable increase over the past decade.⁸²

Figure 1. Number of Individual Estimated Tax Penalties Assessed from 2000–2022 (in Millions)

III. SOCIAL SCIENCE LITERATURE SUPPORTING A SOLUTION

Part II explained the complexity faced by platform workers in meeting tax compliance obligations. In particular, because they do not have their taxes withheld, these workers must take affirmative steps to estimate and pay their taxes each quarter. This Part looks to social science research to understand why paying taxes is so psychologically difficult and what can be done to motivate taxpayers to comply. As this Part reveals, noncompliance by independent contractors is not just a matter of lacking sufficient knowledge. Rather, taking affirmative steps to pay taxes on time requires motivation, self-control, and planning. Research over the past several decades on so-called behavioral nudges shows that policy design can have a drastic impact on whether individuals engage in desired behaviors like paying taxes. This research shows that, the easier and simpler obligations are made for people, the more likely they will comply with those obligations. Section A first describes the broader social science research on nudges. Section B discusses specific studies relating to tax compliance that suggest that more frequent reminders to pay would likely improve tax compliance for independent contractors.

A. Reasons for Tax Noncompliance and How Nudges Can Help

This Section first discusses psychological factors that contribute to taxpayers not meeting their payment obligations, even when they are aware of them. It also introduces the concept of nudges and discusses how these behavioral interventions can motivate desired behavior, including compliance with legal obligations.

1. Why Taxpayers May Struggle to Pay Estimated Taxes

There are a number of reasons that taxpayers fail to report their income and pay their taxes. One is simply opportunity. Recall that when taxpayers are not subject to third-party information reporting, they demonstrate low levels of compliance, which is unsurprising because they are unlikely to get caught. Scholars have also explored many non-economic factors that may contribute to noncompliance, such as social norms of noncompliance or perceptions that the tax system is unfair.⁸³

The focus of this Article, however, is on independent contractors—particularly online platform workers—who receive an annual Form 1099-K. For these taxpayers, there is little opportunity to underreport their income without getting caught, yet their compliance is still often lacking, particularly when it comes to making timely payments of quarterly estimated taxes.⁸⁴ In other words, workers who receive a Form 1099 are less likely to try to conceal their earnings (since they are likely to get caught) but may fail to pay timely taxes on those earnings. As discussed above in Part II, research reveals that many platform workers may simply fail to understand the tax consequences of independent contractor status. However, lack of knowledge is unlikely to be the only reason for noncompliance.

Recall that platform workers and other independent contractors do not have the benefit of having their taxes withheld.⁸⁵ This means they are responsible for tracking their earnings, budgeting for taxes from those earnings, and making quarterly remittances. A number of well-documented psychological biases likely make this difficult for many taxpayers, even if they have no intention of cheating. First, humans have limited attention and are inherently forgetful.⁸⁶ This is why a doctor’s office or a restaurant sends us one or more reminders about upcoming appointments or reservations.⁸⁷ For platform workers and other independent contractors, making quarterly tax payments without any reminder to do so is no small feat.

Even aside from the fact that taxpayers may simply forget about estimated tax deadlines, people also tend to procrastinate and lack self-control.⁸⁸ This might make it hard for taxpayers to follow through with making estimated tax payments despite their awareness of the obligation and despite their best intentions. This tendency to procrastinate is well-documented in the context of saving for retirement, where people frequently save less than they think they should.⁸⁹

Finally, people might avoid paying estimated taxes altogether because they find it difficult or overwhelming. The payments themselves can be made online (or through the IRS2Go app), and finding and navigating the IRS website to make the payments is a relatively straightforward process.⁹⁰ But calculating the amount of the payments is not, and this difficulty only serves as a further source of psychological friction for platform workers.

Recall that independent contractors can avoid estimated tax penalties by paying 100% of their prior year tax liability or 90% of their current tax liability.⁹¹ While these rules are not as complex as other parts of the tax law, they are not quickly and easily applied. Taxpayers who do not prepare their own returns may not have quick and easy access to a copy of their return to refer to their tax liability for the prior year. Many are likely not even aware of the safe harbor that allows them to rely upon last year’s tax liability. Further, estimating tax liability to rely on the 90% rule is not easy. Taxpayers may not realize that they need to estimate both their income tax liability and their self-employment tax liability to meet these obligations. Studies also show that most people don’t know what their average or marginal tax rates are, making it difficult to estimate one’s prospective income tax liability.⁹²

A taxpayer who consults IRS Form 1040-ES: Estimated Tax for Individuals, will be confronted with twelve pages of instructions for estimating and paying these taxes.⁹³ To determine the amount of estimated tax one should pay, the form points taxpayers to the Estimated Tax Worksheet, which is a full-page worksheet containing fifteen line items.⁹⁴ Several of these line items have multiple parts (for example, a, b, and c) that require computations. One of the line items is the taxpayer’s self-employment tax liability, which is calculated on yet another full-page worksheet with six line items.⁹⁵

It is worth pausing here to observe the numerous obstacles that stand between platform workers and their tax obligations. One is simply knowledge; the taxpayer must understand what it means to be an independent contractor for tax purposes. But even if a taxpayer has a general understanding that they are solely responsible for their tax payments because they don’t have an employer to withhold, there are numerous sources of friction that make it less likely the taxpayer will comply. There are no required reminders to pay, the deadlines are not obvious, and the actual process of calculating estimated payments is complex and requires significant work on the part of the taxpayer.

2. Information Reporting as a Nudge

The reasons that independent contractors often struggle to pay their taxes on time are both intuitive and well-documented in the literature. Paying estimated taxes takes memory, planning, motivation, and self-control. In short, the current tax regime creates high levels of psychological friction for taxpayers who do not have their taxes withheld or who do not have access to tax advisors. There is a role here for a quarterly Form 1099 to help reduce this friction by serving as a “nudge.”

As defined by Richard Thaler and Cass Sunstein, a “nudge” is an intervention that “alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.”⁹⁶ In other words, nudges encourage people to engage in desired behavior without offering them significant financial incentives or coercing them through the threat of punishment.⁹⁷ Nudges often accomplish this by making a desired action simpler or easier for people.⁹⁸ Research has shown, for example, that when employees are automatically enrolled in 401K savings plans as a default, enrollment in those plans is significantly higher as compared to when employees have to take affirmative steps to enroll in such plans.⁹⁹

In addition to helping people overcome inertia and procrastination, nudges might also provide information or reminders to encourage behavior, such as simplifying form instructions or sending text message reminders.¹⁰⁰ For example, a New York City program that sent text message reminders to people right before they were due to appear in court significantly reduced the number of people who failed to appear.¹⁰¹ The rate of failure to appear in court declined even more when the text reminders were paired with a redesigned summons form that more prominently displayed pertinent information, such as where and when to appear, and the consequences of not appearing.¹⁰² Governments around the world have increasingly employed nudges to achieve a variety of other public policy goals, from promoting health, protecting the environment, and encouraging people to vote.¹⁰³

As illustrated by the success of automatic enrollment in retirement plans, nudges are well suited to guide behavior when procrastination, inertia, and similar psychological frictions are involved. This makes payment of taxes by platform workers an ideal candidate for nudges. Particularly, a nudge that could provide both information and a reminder to the taxpayer about paying estimated taxes—similar to the text reminder and redesigned summons form in the New York City program—could significantly enhance compliance. And policymakers would not need to reinvent the wheel because a source of information for taxpayers already exists: the Form 1099. Part IV develops a specific proposal for a redesigned Form 1099 that a taxpayer would receive quarterly: serving both as a source of information (how much income was earned and what steps must be taken to pay taxes) and as a reminder to pay immediately prior to each deadline.

When considering why platform workers struggle to meet tax payment obligations, the Form 1099 has the potential to take on a new and powerful role in enhancing tax compliance. To be sure, the traditional function of the 1099—as a way to inform the government of the taxpayer’s earnings and to deter cheating—will always be paramount. But a well-designed system of information reporting can also serve as a nudge. The 1099 can provide information, simplification, and timely reminders to pay, with little extra administrative cost. Before turning to the specifics of the proposal for a quarterly 1099, the next Section explores the social science literature on what makes an effective informational nudge, particularly in the context of taxes.

B. Designing Effective Informational Nudges

This Section discusses recent studies showing how a well-designed nudge, in the form of a reminder letter, can improve tax compliance. It then uses the insights from these studies to describe how a quarterly 1099 could be best designed to improve tax compliance by platform workers.

1. Reminders to Pay Taxes Are Effective and Timing Matters

Several recent empirical studies show that sending letters reminding people to pay their taxes results in a higher likelihood of payment.¹⁰⁴ For example, one field study examined the effect of mailing reminder letters to property owners who had obligations to pay quarterly property taxes.¹⁰⁵ While one group in the study received brief reminder letters every quarter for a year, a second group in the study received a one-time mailing with a guide to develop a financial plan, as well as a follow up phone call from a financial counselor.¹⁰⁶ The one-time financial planning packet and offer of free counseling had no effect on timely property tax payments.¹⁰⁷ But the quarterly reminders reduced the rate of default on property taxes by one third.¹⁰⁸ The study’s authors concluded that “repeated, generic reminders” were more effective at prompting timely payment than “customized information about their obligations” that was sent to taxpayers only one time.¹⁰⁹

Another field study conducted with the Ministry of Finance in Ontario examined the effect of sending letters to business organizations who were late in meeting their payroll tax obligations.¹¹⁰ The experimental letter, which gave step-by-step instructions for how and when to make payment, increased the likelihood of payment in the year the letter was sent.¹¹¹ However, the study showed no evidence that receiving the experimental letter improved compliance in the following year.¹¹² On the other hand, when some businesses were sent another letter in the subsequent year, compliance increased, suggesting that such letters are “most effective when they proximately precede a decision point.”¹¹³

These studies indicate that nudging tax compliance through reminders is effective and, importantly, the timing of those communications matters. But for platform workers and other independent contractors, there is currently no system of reminders for when payment is due. While the annual Form 1099 does communicate vital information to taxpayers about their total earnings from a particular payer, it is only received after the tax year has ended, long after the taxpayer’s four estimated tax payment deadlines have come on and gone.¹¹⁴

The studies discussed above suggest that communications that do not immediately precede payment deadlines are unlikely to prompt payment and, concededly, the current Form 1099 was not designed to serve as a nudge. However, there is no reason that third-party information reporting can’t continue in its current role (mainly as a deterrent) while also serving as a reminder for the taxpayer. It is both intuitive and supported by empirical research that, if the government wants to encourage timely tax payments, it should prompt taxpayers to do so immediately preceding the deadlines for such payments. Thus, taxpayers should receive third-party tax information each quarter, leading up to the deadline for their quarterly estimated tax payments.

2. Planning Prompts Are Effective

Not only does the timing of information matter, but the content of reminder notices also impacts compliance. Specifically, the aforementioned experiment with the Ministry of Finance in Ontario showed that experimental late notices that contained “planning prompts” were more effective at improving compliance than a standard late notice.¹¹⁵ Planning prompts—nudges designed to help people make specific plans for how and when they will take an action—have been shown to help people overcome inertia and procrastination in a variety of settings.¹¹⁶ For example, planning prompts that ask voters to indicate where and what day they will vote have been shown to improve voter turnout.¹¹⁷ Similarly, text message reminders that included a link to make an appointment were found to increase uptake of COVID-19 vaccinations.¹¹⁸

In the Ontario tax study, the experimental letter gave taxpayers instructions about how and where to file their payroll tax return, along with a specific deadline of when to file it.¹¹⁹ By way of contrast, the standard letter (serving as a control) simply told taxpayers to pay “immediately.”¹²⁰ In summarizing the success of the experimental letter in improving compliance, the study authors observed:

Drawing on the insight that people often fail to act on their motivations, we argue that overdue tax payments might not only result from the lack of sufficient motivation or ability to pay, but also from the absence of a concrete plan of how to act on those motivations. Importantly, providing a plan with an explicit deadline and specific instructions for its implementation appears to encourage organizational taxpayers to act and aids in overcoming barriers of procrastination or forgetfulness . . . .¹²¹

The Ontario tax study, and other research on the effectiveness of planning prompts, indicates that a well-designed nudge may help people follow through on intended behavior by providing them with concrete steps for how to act. This indicates that quarterly tax information provided to independent contractors would be most effective if the content of the reminder provided specific details about how and when to pay estimated taxes. This idea is developed more in Part IV below.

3. Formality Matters

Finally, research shows that formal communications from the government may be more effective at nudging behavior than informal communications.¹²² A recent set of field studies documents this so-called “formality effect,” in which people responded more to communications that looked official, as opposed to communications that looked less official because they were in colorful font, accompanied by graphics, pictures, or informal language.¹²³ In the study, subjects were more likely to report taking a requested action, such as self-certifying a business or claiming a tax credit, if they received the more formal communication.¹²⁴ The study’s authors hypothesized that people see formality as an indicator of credibility, and that the formal letters conformed with their “expectations about how government communications should look, . . . signaling trustworthiness and competence.”¹²⁵

This recent research observing a formality effect suggests taxpayers may pay more attention to and take more seriously formal communications as opposed to other types of reminders. For this reason, nudging taxpayers to pay quarterly taxes through a Form 1099 is likely more effective than less formal reminders, such as email communications from platform companies.

Consider an Uber driver, for example. Presumably Uber could send the taxpayer an earnings statement each quarter with an explicit reminder to pay estimated taxes. But a Form 1099 is a well-known government form which undoubtedly holds an association in most taxpayers’ minds with reporting and paying taxes. A quarterly 1099 would be salient, formal, and likely received less frequently than other communications from Uber. All of these factors suggest a taxpayer would be more likely to pay attention to and respond to the 1099 than a less formal reminder.

IV. THE PROPOSAL: QUARTERLY INFORMATION RETURNS

Drawing on the lessons from the social science literature discussed in Part III, this Part offers a novel proposal for a quarterly Form 1099. Specifically, it proposes a new Form 1099-ES to be sent to certain taxpayers each quarter, in addition to the annual Form 1099-K. The 1099-ES would be issued to online platform workers ahead of each estimated tax payment deadline. However, unlike the annual Form 1099-K, the 1099-ES would go only to the taxpayer and not the IRS. Nothing would change with respect to the process of year-end reporting on Form 1099-K to both the IRS and the taxpayer.

A. Form 1099-ES: The Basics

This Section discusses the fundamental elements of a Form 1099-ES: when it would be issued and what the form would contain. As the social science research indicates, timing the delivery of Form 1099-ES to immediately precede estimated tax deadlines would help taxpayers comply with these deadlines.¹²⁶ This Section also draws upon the research about planning prompts to propose simple and clear instructions for paying estimated taxes.¹²⁷

1. Timing

Recall that estimated tax payments are due four times per year, fifteen days after each payment period ends.¹²⁸ Confusingly, the payment periods are not broken up into equal three-month quarters. Rather, the four payment periods and corresponding deadlines are as follows (with a two-month period in the spring and a four-month period in the fall)¹²⁹:

Table 1.
Payment Period	Estimated Tax Payment Due Date
January 1 – March 31	April 15
April 1 – May 31	June 15
June 1 – August 31	September 15
September 1 – December 31	January 15

Note that the uneven nature of the payment periods adds complexity and likely makes it even more difficult for taxpayers to remember when to make estimated tax payments.

To assist platform workers in meeting their tax payment obligations in a timely manner, platform companies could be required to send a Form 1099-ES to the worker during the window between the end of the payment period and the estimated payment deadline. Since this period is currently only fifteen days, the best approach to implementing quarterly 1099s would be for Congress to extend the estimated payment deadlines to thirty days after the payment period ends. This would allow for the payer to have fifteen days to issue the 1099-ES and the taxpayer to have fifteen days from receipt of the 1099-ES to make the payment. The proposed schedule would be as follows¹³⁰:

Table 2.
Payment Period	1099-ES Due Date	Estimated Tax Payment Due Date
January 1 – March 31	April 15	April 30
April 1 – May 31	June 15	June 30
June 1 – August 31	September 15	September 30
September 1 – December 31	January 15	January 30

If there were compelling reasons not to change the payment deadlines beyond fifteen days from the end of the pay period, the timeline for sending the Form 1099-ES would have to be shorter. There would be fifteen total days to split between the payer/sender of the 1099-ES and the taxpayer/recipient of the 1099-ES. Each of the two parties has their own obligation. The payer/sender must calculate how much the taxpayer/recipient has been paid that quarter and fill out and deliver the form. The taxpayer/recipient must determine how much estimated tax to pay by the deadline, using the information from the form.

As between the two parties, more time should be allotted to the recipient/taxpayer. Parties sending a 1099-ES will generally be large and sophisticated (for example, a company like Uber), and thus are likely to have the resources to handle their side of the obligations efficiently. On the other hand, as discussed above, individual recipients of a Form 1099 often lack knowledge about how to properly manage their tax obligations and are less likely to have automated processes in place to meet these obligations. Accordingly, the fifteen day period should be split in the taxpayer’s favor. For example, for the pay period ending March 31, the 1099-ES might be due within five days (April 5 in this example), which would leave the taxpayer ten days from receipt of the 1099-ES to meet the deadline. Such a schedule could be as follows:

Table 3.
Payment Period	1099-ES Due Date	Estimated Tax Payment Due Date
January 1 – March 31	April 5	April 15
April 1 – May 31	June 5	June 15
June 1 – August 31	September 5	September 15
September 1 – December 31	January 5	January 15

The key to this timing of delivery of Form 1099-ES would be proximity to the taxpayer’s estimated tax payment deadline. In this way, the 1099-ES would not only provide vital information to the taxpayer about how to meet their obligations (discussed more below), but the receipt of the 1099-ES itself would provide a reminder that estimated taxes must be paid, and that they are due shortly.

It is logical and intuitive that payment reminders would come in close proximity to payment deadlines, and that they come with the same frequency as payment deadlines. Indeed, people are accustomed to this schedule in virtually every other aspect of life in which regular payment deadlines occur. A monthly electricity payment deadline is almost certainly accompanied by the receipt of an electricity bill in the days leading up to the deadline. The receipt of a 1099-ES somewhere between five and fifteen days before estimated tax payments are due would serve the same function as a bill; it would not only help taxpayers determine what they owe, but it would also remind taxpayers that they must make payment.

Given the desirability of timing the Form 1099-ES to be close to the payment deadline, the most efficient means of delivery would be to send it to taxpayers electronically. Current IRS rules allow the annual Form 1099 to be sent electronically (as long as the taxpayer consents), and this method of delivery of tax forms is likely familiar to most platform workers.¹³¹

2. Content of Form

The goal of Form 1099-ES is twofold. First, the form provides a reminder of the taxpayer’s obligation to make a quarterly estimated tax payment. Even for taxpayers who might know exactly how much to pay (because, for example, they are basing their estimated tax payments on the prior year’s tax liability), the form will still serve as a reminder of when to pay. A second and equally important goal of the Form 1099-ES is to help taxpayers calculate and make their estimated tax payments.

Recall that, in the studies discussed above in Part III, individuals were more likely to complete tasks when they were given specific, simple instructions, and completion was made as easy as possible. For example, vaccine uptake increased when individuals were asked to pick a date and given a link to make an appointment.¹³² Similarly, parties were less likely to miss a court date when they received reminders and a simplified summons form with clear instructions about where to go and when.¹³³ In light of this research, the goal of the Form 1099-ES should be to make it as clear and easy as possible for the taxpayer to make estimated tax payments. To that end, the Form 1099-ES should be based on a simplified version of Form 1099-K, with brief instructions about how to calculate and pay estimated taxes.

The current Form 1099-K contains basic identifying information about both the payer and the recipient/taxpayer, along with eight boxes providing gross payments and certain tax information.¹³⁴ Boxes 1 and 5 are most relevant for this purpose: Box 1 shows gross earnings for the entire year, and Box 5, which is broken up into Box 5a-January, Box 5b-February, and so forth, shows earnings for each of the twelve months of the year.¹³⁵ Form 1099-K does not contain any instructions to taxpayers about how to report and pay taxes on their gross earnings reported in Box 1.¹³⁶

The Form 1099-ES would use the template for Form 1099-K as a starting point. In lieu of the current title, “Form 1099-K, Payment Card and Third Party Network Transactions,” the form would simply say “Form 1099-ES, Statement of Quarterly Payments.” The identifying information, such as the taxpayer/recipient’s name, address, and taxpayer identification number, along with the payer’s name and address, would be the same. The only substantive change would be to Box 1. Rather than saying “Gross Amount of Payment” as Form 1099-K does, Box 1 would be broken up into two parts: Box 1a and Box1b.

Box 1a of Form 1099-ES would say “Gross Payments for the Payment Period January 1–March 31” (or adjusted accordingly for the relevant payment period). Box 1a would then contain payments for that pay period only. This would be the key information for determining the taxpayer’s estimated tax payment.

Box 1b would show “Gross Payments Year to Date.”¹³⁷ Box 5 would fill in the payments for each of the relevant months (for example, January, February, and March) as on the regular Form 1099-K.

The top half of the Form 1099-ES would look much like the Form 1099-K, with the exception of the modifications described in the preceding paragraphs. However, the bottom half of Form 1099-ES would contain several short pieces of important information for taxpayers. (Currently, the bottom half of Form 1099-K is blank). The bottom half of Form 1099-ES should communicate the following information: (1) the exact deadline for making an estimated tax payment; (2) the link to make the payment online; and (3) specific, simple information for how to calculate the estimated tax payment based on the gross payments reported. Note, this tracks the social science research indicating that people are most likely to follow through with tasks when they are provided with step-by-step instructions about how to act.¹³⁸ A specific example of these instructions is discussed later in Section IV.B.

3. Simplified Safe Harbor Payment

Implementing an effective quarterly 1099 form would require one substantive law change, which would be a simplified method of calculating estimated taxes. Recall that currently, estimated tax penalties apply unless the taxpayer pays 100% of the prior year’s tax liability or 90% of the current year’s liability (or owes less than $1,000).¹³⁹ None of these lend themselves to a quick and easy calculation that can be communicated in one step on a Form 1099-ES.

The most effective way to encourage platform workers to make an estimated tax payment is to provide a new safe harbor rule that allows them to pay a fixed percentage of the quarterly gross payment that is reflected on the 1099-ES. Importantly, this does not require the taxpayer to have any other information at their disposal (such as last year’s tax liability) other than what is printed on the Form 1099-ES. For example, the Form 1099-ES might tell taxpayers that they can avoid an estimated tax penalty if they pay 5% of their gross payments in estimated tax. For taxpayers that want to do a more detailed calculation of their estimated tax liability, the form could also refer to the longer instructions (and worksheet) for how to do so.¹⁴⁰ The next Section further discusses how such a safe harbor could be calculated.

Although the 90%/100% rules for avoiding an estimated tax penalty are statutory, the Treasury and the IRS could likely implement an administrative safe harbor rule without congressional action.¹⁴¹ In other contexts, the IRS has enacted administrative safe harbor rules which taxpayers can choose to rely on to avoid penalties but are not obligated to follow.¹⁴² One example is the simplified home office deduction. Section 280A of the Internal Revenue Code (“Code”) provides statutory limitations on the deductibility of home office expenses.¹⁴³ However, in Revenue Procedure 2013-13, the IRS provides “an optional safe harbor method that individual taxpayers may use to determine the amount of deductible expenses attributable” to their home office for the year.¹⁴⁴ Under the optional safe harbor, rather than tracking and allocating actual expenses attributable to the home office (such as rent, depreciation, or utilities), taxpayers may instead elect to deduct $5 per square foot of home office space, up to a maximum of 300 square feet ($1,500 total).¹⁴⁵

In the case of this home office safe harbor, the government has made a decision to sacrifice accuracy in the name of tax administration. The Revenue Procedure states:

The Internal Revenue Service (Service) and the Treasury Department recognize that the calculation, allocation, and substantiation of allowable deductions attributable to the use of a portion of the taxpayer’s residence for business purposes can be complex and burdensome for small business owners. Accordingly, the Service and the Treasury Department are providing this optional safe harbor method to reduce the administrative, recordkeeping, and compliance burdens of determining the allowable deduction for certain business use of a residence under § 280A.¹⁴⁶

Taxpayers are not obligated to use the simplified home office deduction; if they think they can claim a higher deduction, they can simply apply the statutory rules for deducting home office expenses.

In the same way, a safe harbor estimated tax payment would offer platform workers an option for calculating estimated tax payments that would allow them to avoid an estimated tax penalty; they would multiply a fixed percentage amount (for instance, 5%) by the gross payment shown on their 1099-ES. For taxpayers who wanted to make a more precise calculation of their estimated tax liability, they would be free to use the statutory rules for avoiding penalties. Like the simplified home office deduction, the simplified safe harbor payment for estimated taxes would provide taxpayers with an easy-to-use formula that could be applied quickly with virtually no administrative hassle.

It is also worth noting that providing taxpayers with a simplified safe harbor payment in the form of a fixed percentage of gross receipts would have no bearing on the taxpayer’s ultimate tax liability. The key to the safe harbor would be to make paying estimated taxes as easy as possible to encourage better compliance with making estimated tax payments. This higher compliance would benefit both the government in its revenue collection efforts, and it would also benefit taxpayers by reducing the amount they must pay at the end of the year. However, a taxpayer’s year-end tax liability would still be calculated under the already existing tax rules.

If the taxpayer owed additional tax at the end of the year because the simplified safe harbor payments did not fully satisfy their tax obligations, the taxpayer would still be obligated to pay that tax with their return. However, they would not face an estimated tax penalty for paying it late. On the other hand, if the simplified safe harbor payments resulted in paying more tax than they owe at the end of the year, the taxpayer would claim a refund with their tax return. In this respect, they would be in the same position as many employees, who often claim refunds because they have more tax withheld than they ultimately owe.¹⁴⁷ This is also true for independent contractors who overpay or underpay their estimated taxes under the statutory rules for avoiding estimated tax penalties.

B. Scope and Implementation of the Form 1099-ES Requirement

A quarterly Form 1099-ES may not be cost effective in all cases, and it is still untested. Accordingly, this Article suggests gradual implementation of the form, starting with online platform companies that facilitate the performance of services (such as driving, errands, or household tasks). Within that group of platform companies, this Article proposes that the rollout of a quarterly 1099 requirement start with ridesharing platforms only, extending to other service-based platforms later after evaluating the initial rollout. Additionally, only platforms of a certain size (measured by gross receipts) should be required to send quarterly 1099-ES Forms to workers; the requirement is not intended to burden small businesses who work with independent contractors.

This Section discusses who would be required to send a Form 1099-ES, which payees (taxpayers) would receive the form, how to calculate a simplified safe harbor payment, and then offers an example of implementation for ridesharing service platform workers.

1. Who Would Be Required to Send Form 1099-ES?

At the highest level, a Form 1099-ES would only be required of payers who already have an obligation to send an annual Form 1099 to one or more independent contractors. As discussed in Part I, independent contractors generally receive either Form 1099-K or Form 1099-MISC if they receive over $600 during the tax year from a payer.¹⁴⁸ A Form 1099-MISC would apply to an independent contractor payment not made through an online application—for example, if a business hired a painter and paid them by check.¹⁴⁹ However, this Article focuses exclusively on payers who qualify as TPSOs (such as online platform companies),¹⁵⁰ and thus focuses only on payers required to send a Form 1099-K. In excluding Form 1099-MISC, the Article’s focus is intentionally limited to payers who are already transacting with payees electronically and thus likely have the technological capacity to efficiently process and issue electronic quarterly information returns. Such focus also recognizes the reality that online platform work is a growing and significant segment of the economy that presents unique tax compliance challenges.¹⁵¹

Within the realm of Form 1099-K issuers, the proposal does not include credit card companies, which also have obligations to issue 1099-Ks.¹⁵² This is, again, because the quarterly 1099 proposal is intended to help online platform workers and similar individual taxpayers. The 1099-K requirements for credit card companies require the form to be issued to a broader range of businesses, for example, a large brick and mortar retail business that accepts credit cards, which are not the taxpayers targeted by the proposal.

Excluding Form 1099-MISC issuers and credit card companies, the Form 1099-K rules apply to payers who qualify as TPSOs, which include online platforms like Uber and Etsy, payment applications like Venmo and PayPal, as well as some cryptocurrency processors.¹⁵³ Within this group, only online platforms that pay independent contractors for services (like Uber or TaskRabbit) should initially be subject to a Form 1099-ES requirement.

While many independent contractors earn income online that is not service related, such as by selling goods using Venmo or Etsy, gross income from these transactions is less likely to be taxable. This is because only net earnings after deducting the cost of the goods sold are subject to income and self-employment tax,¹⁵⁴ and many online sales are likely made at little to no profit. Consider, for example, someone who sells their used furniture using eBay. Even though they will receive a Form 1099-K if the gross payments for the furniture exceed $600, the seller would not have any taxable income to report unless they sold the furniture for more than they purchased it for (an unlikely result for used furniture). Without any tax liability, they would have no obligation to make estimated tax payments with respect to the sales. On the other hand, taxpayers who are paid for services are more likely to have reportable net income, even if they are able to claim some business deductions.¹⁵⁵

To be sure, many sellers of goods earn a taxable profit. A seller who knits blankets and sells them on Etsy is likely to earn more than they spent on supplies. However, it is harder to distinguish between casual sellers (who may be selling used goods at a loss) and professional sellers by looking at the platform alone. A payment platform like Venmo might be used to make casual sales and professional sales; it also is often used for transactions that are not taxable at all, such as gifts. Thus, for administrative ease, this Article proposes initially excluding these platforms altogether from the quarterly Form 1099-ES requirement.

If implementing the requirement for service platforms is successful, the quarterly 1099-ES could be implemented down the road for platform workers who sell goods. To target professional sellers who are likely to be making a profit (and thus have taxable sales to report), the government could consider raising the payment threshold substantially beyond the current $600 for a Form 1099-K. Thus, for example, it might only require quarterly 1099s for sellers on these platforms who earn at least $10,000 of gross receipts in the year or $5,000 in a single quarter.¹⁵⁶

In limiting its focus to service-based platforms, the proposal would also initially exclude platforms that allow individuals to rent residential spaces online, such as Airbnb and VRBO. The reason for this exclusion is that the primary goal of the proposal is to ease compliance burdens on non-employee service providers, which is the group that has been singled out by the GAO and commentators as in particular need of assistance in meeting tax compliance obligations.¹⁵⁷ Further, many property owners earn rental income through platforms like Airbnb passively and are therefore not treated as independent contractors subject to self-employment tax.¹⁵⁸ Like online sales platforms, Congress could decide to gradually extend the 1099-ES requirement in the future to cover property rentals, but the proposal herein is more modest in scope to start. Accordingly, the remainder of the Article will focus only on service-based platforms.

To implement the proposal, Congress could enact a statutory requirement that any TPSO that pays an individual in connection with the performance of services by that individual be required to send a quarterly 1099-ES if a certain dollar threshold of payment is met.¹⁵⁹ TPSOs that pay individuals for performing services could include ridesharing platforms like Uber and Lyft, delivery platforms like Instacart and DoorDash, and other service-based platforms like Handy and TaskRabbit.¹⁶⁰ However, as discussed further below, this Article suggests that quarterly 1099s first apply only to ridesharing platforms like Uber and Lyft, with later extension to other types of services.¹⁶¹

While the proposal is targeted at large platform companies (such as those mentioned in the preceding paragraph), it is possible a much smaller business could technically meet the definition in the statute and be swept into the Form 1099-ES requirements. On one hand, a quarterly information return benefits an independent contractor regardless of who the payer is. However, whether a quarterly 1099 is cost-effective depends, in part, on whether the administrative cost imposed on the third party who must send the form is justified.

Imagine, for example, that an individual began operating their own ridesharing business through a new online platform, and that they worked locally with just a few drivers and generated only modest revenue. For such an individual operating at a small scale, the relative cost of sending a quarterly Form 1099-ES might be high compared to the tax compliance benefit on the payee’s side of the transaction (both in terms of time saved by the payee and revenue collected by the government). On the other hand, larger platform companies are more likely to already have the infrastructure in place to quickly compute and produce an electronic form with quarterly earnings and, due to economies of scale, can likely do so at relatively low cost.

To account for the potential of burdening smaller payers where the administrative cost would not be justified, Congress should consider requiring quarterly 1099s to be issued only by payers that exceed a minimum amount of revenue.¹⁶² For example, the rule might only require quarterly 1099s to be issued by payers who earn at least $500,000 in gross revenue during the year. This would surely capture larger platforms that can handle the obligation at little administrative cost while excluding truly “small” businesses that might be unduly burdened by the extra administrative requirement.

2. Setting the Payment Threshold

In terms of setting the dollar threshold for quarterly 1099s, the starting point should be the current threshold for Form 1099-K. Since TPSOs must send a Form 1099-K to any payee who is paid more than $600 during the year, at a minimum, the Form 1099-ES requirement should be triggered if a payee receives $600 in payments in a single quarter.

What if the payee receives less than $600 in a quarter but appears on track to receive $600 by the end of the year? One quarter of the $600 threshold is only $150, and it is questionable whether this amount justifies the administrative cost of an additional tax form (particularly given the criticism that the $600 threshold has never been adjusted for inflation).¹⁶³ Thus, as long as the 1099-K threshold remains at $600, the Form 1099-ES threshold should not be set any lower. This would mean that a payer has an obligation to send a quarterly 1099-ES to a payee in any quarter where the total cumulative payments for the year thus far exceed $600.

For example, suppose Driver A drives for Uber and is paid $300 between January 1 and March 31 and then is paid $400 between April 1 and May 31. Uber would not have an obligation to send Driver A a Form 1099-ES for the first payment period because Driver A would not have exceeded the $600 threshold. But Uber would have an obligation to send a Form 1099-ES for the second payment period, because Driver A would have been paid over $600 ($700, in this example) by that point. The 1099-ES would be for the second payment period, but it would reflect both the payments for that payment period ($400 in this example) and the year-to-date gross payments ($700 in this example). Uber would also have an obligation to send a Form 1099-ES for any remaining payment period in which Driver A was paid any amount.

In the likely event that Congress eventually raises the $600 threshold for 1099-K reporting, the Form 1099-ES threshold should also be revisited and might not track the 1099-K threshold as precisely. For example, a current bipartisan proposal would raise the 1099-K reporting threshold to $10,000.¹⁶⁴ In that case, the quarterly 1099-ES threshold might start at something lower and might be tied to the amount of quarterly payment in addition to cumulative payments. For example, Congress could impose a requirement that a Form 1099-ES be sent to any taxpayer who earns at least $5,000 in any single payment period or has earned $10,000 cumulatively by that payment period. If the taxpayer ultimately did not earn enough to meet the Form 1099-K threshold by the end of the year, the payer would not have to issue the Form 1099-K, but the payee would still have the benefit of the reminder and assistance in paying estimated taxes. (Note, the payee would still have an obligation to report and pay tax on any taxable income even if the annual 1099-K threshold was not met.)

Finally, it bears repeating that the obligation to send a Form 1099-ES for a payment period would only be an obligation to send the form to the payee, not the IRS. This could be done electronically at little cost to the payer. At the same time, the IRS would not be overburdened with more forms to process.

3. Calculating the Simplified Safe Harbor Payment

Form 1099-ES would not only report a worker’s gross payments for the quarter but should also contain clear and simple instructions for how to calculate and pay estimated taxes. As discussed in Section III.A, this means providing the taxpayer with: (1) the exact deadline for making the payment; (2) a link to make online payments (and an address to mail physical payments); and (3) a simplified safe harbor method of calculating the estimated tax due.¹⁶⁵ This Section considers how to calculate that safe harbor payment and proposes using a formula of 5% of the gross payments for that payment period.

Recall that the goal of the simplified safe harbor payment is to provide taxpayers the ability to easily calculate estimated tax payments without having to track down any other information beyond what is reflected on the Form 1099-ES. To achieve this, the safe harbor estimated tax payment would have to be based on the taxpayer’s current year tax liability, rather than the previous year’s liability (which would require consulting last year’s tax return). Thus, the goal of the safe harbor payment would be to determine an estimate of how much income and self-employment tax would be due on the gross payment reflected on the current Form 1099-ES.

Determining a precise amount of tax due on a gross payment for an independent contractor is difficult to do without more information. First, only taxable income, not gross income, is subject to income tax, meaning that a worker would have to reduce their gross income by any available business deductions as well as so-called “below the line deductions” (either the standard deduction or itemized personal deductions) to arrive at taxable income.¹⁶⁶ Second, only net business income, after factoring in business expenses, is subject to self-employment tax.¹⁶⁷ Third, many independent contractors can also claim a deduction under Code § 199A of up to 20% of their business income.¹⁶⁸ Finally, although self-employment tax is generally calculated at a fixed percentage (15.3%), a taxpayer’s income tax rate depends on how much taxable income they have for the year.¹⁶⁹

More simply, 1099 Forms reflect gross payments, but federal taxes are generally only due on net earnings from self-employment. Thus, to provide a simplified calculation of how much tax is due on a gross payment, a formula would need to make several simplifying assumptions to arrive at estimated net income and an estimated tax rate.

First, net business income must be derived from gross payments. In other words, the formula must make an assumption about what portion of a gross payment will be left over after business expenses are deducted. To do this, policymakers could look to public IRS data showing the average ratio of net income to gross receipts for particular industries. For example, IRS data on sole proprietors shows that the average profit ratio for workers engaged in driving services, including ridesharing services, is approximately 30%.¹⁷⁰ In other words, net income after deducting business expenses was about 30% of gross income, on average. Similarly, a study conducted by the Office of Tax Analysis at the Department of Treasury examined profit ratios for gig economy workers and found that, on average, gross profit ratios were approximately 30%.¹⁷¹

Accordingly, to calculate a simplified safe harbor payment for the purpose of implementing Form 1099-ES, policymakers could assume a profit ratio of 30%. Note, in certain service industries, profit ratios are likely much higher. Ideally, a different safe harbor calculation could be offered to different workers according to industry. Further research might yield better data on average profit ratios in various sectors of the gig economy. For now, this Article suggests limiting the quarterly 1099 proposal initially to ridesharing platforms, where the profit ratio is more well established by IRS data.¹⁷²

Presuming a profit ratio of 30% means the safe harbor formula would assume 30% of the gross payment reflected on a Form 1099-ES represents taxable income. The next step would be deciding upon a tax rate. Taxpayers are responsible for both income tax and self-employment tax when they make estimated tax payments.¹⁷³ Self-employment tax is fixed at approximately 15% of net earnings.¹⁷⁴ Individual income tax rates range from 10% to 37%, depending on taxable income.¹⁷⁵ But since average platform earnings tend not to exceed the income levels associated with higher brackets, this proposal focuses on income tax rates of 10, 12, and 22%,¹⁷⁶ and does not consider higher marginal rates.¹⁷⁷

Combining income tax rates with self-employment tax would result in a total federal tax rate ranging from 15% to 37%, as reflected in Table 4 below¹⁷⁸:

Table 4.
Taxable Incomea	Income Tax Rate	Self-Employment Tax Rate	Total Federal Tax Rate
$0	0	15%	15%
Up to $11,000	10%	15%	25%
Up to $44,725	12%	15%	27%
Up to $95,375	22%	15%	37%
Note: aIt should be noted that these are marginal tax rates, so for a taxpayer who is taxed in a higher bracket, the first dollars of their income are taxed at lower brackets, and only the amount over the dollar threshold is taxed at the highest bracket. Because the purpose of this discussion is to arrive at a rough estimate of how much to pay in quarterly taxes for purposes of the simplified safe harbor, the marginal nature of the tax brackets can be disregarded.

Recall that the proposal assumes a 30% profit ratio for platform workers earning income from ridesharing services—in other words, that net income equals 30% of gross receipts. Setting aside any other deductions (other than business deductions), this would mean that the total tax due on a gross payment could be calculated as approximately:

30% x (the gross payment) x (the total tax rate)¹⁷⁹

Using this formula, the tax due on gross receipts can be derived as a single percentage of the gross receipts, as reflected in the Table 5 below:

Table 5.
Taxable Income	Total Federal Tax Rate	Presumed Profit Percentage	Tax Due as a Percent of Gross Receiptsa
$0	15%	30%	4.5%
Up to $11,000	25%	30%	7.5%
Up to $44,725	27%	30%	8.1%
Up to $95,375	37%	30%	11.1%
Note: aCalculated as 30% times the total tax rate.

As shown above, the tax due on a gross payment would range from about 4% to about 11% of the payment, depending on the taxpayer’s overall taxable income. However, a number of factors which are difficult to generalize are relevant in determining which rate in the range is appropriate for a particular taxpayer. First, taxpayers may earn income from other sources beyond platform work, putting them in a higher income tax bracket than their Form 1099 suggests. Second, although the table above accounts for business expenses by assuming a 30% profit ratio, it does not account for any other deductions and thus likely overestimates tax liability for many taxpayers. Recall that taxpayers can claim the standard deduction or itemized deductions, and independent contractors can generally claim an additional below-the-line deduction under § 199A.¹⁸⁰ Other above-the-line deductions (such as retirement account contributions or student loan interest) also reduce taxable income for taxpayers.¹⁸¹ Finally, workers may be entitled to other tax credits (for example, a child tax credit) that further reduce their tax liability.¹⁸²

These factors, on balance, point towards erring on the lower side of the range of possible percentages of gross receipts. For this reason, this Article proposes 5%, which is a flat and easy-to-remember percentage at the low end of the range reflected in Table 5 above.¹⁸³ Although this Article proposes only one rate to start, policymakers could implement different rates for different industries or groups of platform workers. For example, workers in industries that are purely service based (for example, childcare) likely have far fewer business expenses than ridesharing service drivers, which means 5% of gross payments as an estimated tax payment would probably be too low.¹⁸⁴ For such workers, 10% of gross payments might make more sense as a safe harbor.

4. Examples: Ridesharing Service Platform Workers

This Section illustrates the estimated tax safe harbor proposal with concrete examples involving four rideshare drivers. For the sake of simplicity, all four drivers are assumed to be single, childless, and have no other income.¹⁸⁵ Additionally, the examples assume each driver claims business expenses, a § 199A deduction, and the standard deduction, and no additional deductions or credits.

Assume that the first driver, Driver A, receives gross payments from a ridesharing platform of $25,000 for the year. The distribution of those payments across the four payment periods is shown in Table 6.A below. After business expenses (including fees to the platform and the standard mileage deduction), assume that Driver A’s net income from platform work is $7,500.¹⁸⁶ Driver A’s actual tax liability would be $1,060.¹⁸⁷ Driver A’s estimated tax payments using the 5% safe harbor calculation would total $1,250. Thus, Driver A would overpay their taxes slightly and be entitled to a $190 refund, as illustrated in the table below.¹⁸⁸

Table 6.A. Driver A
	Gross Payment from Platform	Safe Harbor Estimated Tax Payment (5%)	Actual Year-End Tax Liabilitya	Amount Owed (Refund)
Period 1	$6,000	$300	. . .	. . .
Period 2	$5,000	$250	. . .	. . .
Period 3	$8,000	$400	. . .	. . .
Period 4	$6,000	$300	. . .	. . .
Total	$25,000	$1,250	$1,060	($190)
Note: aSee supra note 187.

Assume Driver B receives gross payments of $50,000 from the platform and nets $15,000 after expenses.¹⁸⁹ Driver B would pay $2,500 in taxes under the estimated tax safe harbor and have $2,126 of actual tax liability, resulting in a refund of $374, as illustrated in the table below.¹⁹⁰

Table 6.B. Driver B
	Gross Payment from Platform	Safe Harbor Estimated Tax Payment (5%)	Actual Year-End Tax Liabilitya	Amount Owed (Refund)
Period 1	$12,000	$600	. . .	. . .
Period 2	$13,000	$650	. . .	. . .
Period 3	$10,000	$500	. . .	. . .
Period 4	$15,000	$750	. . .	. . .
Total	$50,000	$2,500	$2,126	($374)
Note: aSee supra note 190.

Assume that Driver C receives gross payments of $75,000 from the platform and nets $22,500 after expenses.¹⁹¹ Driver C would pay $3,750 in taxes under the estimated tax safe harbor and have $3,744 of actual tax liability, resulting in a $6 refund.¹⁹²

Table 6.C. Driver C
	Gross Payment from Platform	Safe Harbor Estimated Tax Payment (5%)	Actual Year-End Tax Liabilitya	Amount Owed (Refund)
Period 1	$20,000	$1,000	. . .	. . .
Period 2	$15,000	$750	. . .	. . .
Period 3	$25,000	$1,250	. . .	. . .
Period 4	$15,000	$750	. . .	. . .
Total	$75,000	$3,750	$3,744	($6)
Note: aSee supra note 192.

Finally, assume Driver D receives gross payments of $100,000 from the platform and nets $30,000 after expenses.¹⁹³ Driver D would pay $5,000 in taxes under the estimated tax safe harbor and have $5,366 of actual tax liability, resulting an additional $366 of tax being due with their return.¹⁹⁴

Table 6.D. Driver D
	Gross Payment from Platform	Safe Harbor Estimated Tax Payment (5%)	Actual Year-End Tax Liabilitya	Amount Owed (Refund)
Period 1	$20,000	$1,000	. . .	. . .
Period 2	$35,000	$1,750	. . .	. . .
Period 3	$12,000	$600	. . .	. . .
Period 4	$33,000	$1,650	. . .	. . .
Total	$100,000	$5,000	$5,366	$366
Note: aSee supra note 194.

Several observations follow from these examples. Generally, workers with lower income will owe less in taxes than those with more income, so lower income workers are more likely to receive a refund if they use the safe harbor, while higher income workers are more likely to owe additional taxes. In the examples above, Drivers A and B (who have the lowest income) made overpayments through estimated taxes resulting in modest refunds. Driver C’s estimated tax payments matched their tax liability almost exactly, while Driver D (the highest earner) owed a modest amount in additional taxes.

Since Drivers A and B are more likely to face liquidity constraints (due to earning less income overall), it is ideal that, as between owing money and receiving a refund, they do not owe money with their tax return. In other words, Drivers A and B are less likely to be able to come up with additional cash for taxes owed when they file their return, so it is ideal they would slightly overpay, rather than underpay. Driver D, on the other hand, is in a better financial position to owe money with their return since they made significantly more money during the year.

In sum, while estimated tax payments are almost never going to match up exactly with a taxpayer’s year-end liability, the goal here is to minimize how much overpayment or underpayment the taxpayer will experience. If taxpayers are paying too much in estimated taxes during the year, even though they can claim a refund, they might be depriving themselves of much needed liquidity during the year. For taxpayers who do not pay enough in estimated taxes, even though the safe harbor formula would protect them from penalties, they may not budget properly for a significant payment due with their tax return. The 5% safe harbor proposed here aims to result in most low-income rideshare drivers receiving a modest refund, while higher earners may owe some additional taxes but would not pay estimated tax penalties.

C. Addressing Potential Objections

This Section addresses three potential objections to the proposal for quarterly 1099s. First, critics might argue that requiring certain businesses to send a Form 1099 every quarter would create too much cost or complexity for the business, for the IRS, or both. Second, critics might argue that there is too much heterogeneity among taxpayers to come up with a fixed formula for a safe harbor estimated tax payment. Third, critics might claim requiring platform workers to receive more frequent tax statements would impose unfair burdens on these workers.

1. Quarterly 1099s Would Impose Undue Complexity and Cost

History has shown that, when Congress expands tax reporting obligations of third parties (such as through expanded 1099 requirements), those third parties generally oppose the change.¹⁹⁵ This is to be expected because it is the third parties who bear the administrative cost of obligations like issuing 1099s. Third parties may also be concerned that tax reporting obligations will make their customers reluctant to do business with them.¹⁹⁶ Thus, if Congress were to implement a new requirement for quarterly 1099s for platform workers, it is possible (if not likely) that the platforms would oppose the rule and claim it is unduly burdensome.

There are several responses to this claim that quarterly 1099s would pose undue burdens on the platform companies. First, the quarterly 1099 requirement would only apply to platforms already required to issue a Form 1099-K to the worker. This means that the IRS is already receiving information about the worker’s earnings. Thus, quarterly 1099s should not discourage workers from doing business with the platform because the IRS is not receiving any new or additional information. Rather, the quarterly 1099 is only for the worker’s benefit. In essence, the quarterly 1099 is a form of free tax assistance from the platform to the worker.

Second, while sending quarterly 1099s to workers will impose additional administrative costs on the platform, that cost will be minor. Particularly, the marginal cost of tracking earnings each quarter is relatively low since the platform already has an obligation to engage in year-end information reporting under the 1099-K rules. This means that additional administrative steps required for 1099-Ks, such as asking taxpayers to provide taxpayer identification numbers, will already be in place.¹⁹⁷ The platform companies also likely already have the necessary technology in place to send tax forms electronically to their workers. Since the quarterly forms only go to the workers, the platforms companies will have no additional filing obligations with the IRS.

Further, it should be noted that imposing some administrative costs on third parties is both efficient and foundational to our tax system. For example, withholding imposes administrative costs on employers, but it is more efficient to have taxes collected and paid by the employer than to impose payment obligations on each employee.¹⁹⁸ Withholding also results in higher tax compliance and more revenue collected.¹⁹⁹ Similarly, third-party information reporting in all areas, from investment income to broker transactions to independent contractor payments, is justified by the higher compliance it brings.²⁰⁰

The same reasoning applies to quarterly 1099s. The tradeoff for the minor cost it would impose on third parties (who can afford to bear it) is reduced administrative cost and higher compliance for the platform workers. In other words, the modest cost to the platform of additional communications to the taxpayer throughout the year should be outweighed by the benefit to the taxpayer of receiving a report of earnings with a reminder and instructions for how to pay estimated taxes.

Another related argument against the proposal might be that the IRS would also be unduly burdened by more 1099 forms, but this argument is misguided. Recall that the quarterly 1099-ES would be an obligation of the platform company to send to the worker, but not to the IRS. The IRS would receive a copy of the taxpayer’s Form 1099-K at the end of the year as under the current system, but the IRS would not receive quarterly information. Thus, there would be no additional returns for the IRS to process as a result of a quarterly 1099 requirement.

Quarterly 1099s would pose a minor administrative burden on the IRS in that the requirement would have to be policed in some way. Presumably, Congress could impose a penalty on businesses that fail to issue required 1099-ES forms to taxpayers in the same way that it imposes penalties for failure to file year-end information returns.²⁰¹ To enforce these rules, the IRS would need to monitor compliance through audits. However, this is already the case for enforcing the expanded 1099-K rules, so verifying compliance with quarterly reporting should not impose significant additional enforcement costs on the IRS.

Finally, it is worth noting that advances in technology have justified expansions to information reporting rules in recent years. As tax information is digitized and easily shared online, it is less costly to require third parties to issue 1099s, which means less political resistance and a greater net benefit to increasing 1099 reporting. These same technological advancements that have justified expanding the pool of 1099 recipients justify providing taxpayers with more frequent, and therefore more helpful, tax information.

2. The Safe Harbor Calculation Would Be Inaccurate

Critics of the 1099-ES proposal might also argue that it is too difficult to provide workers with a simple method of calculating their estimated taxes because each taxpayer’s situation is different. Those critics might further argue that the formulaic safe harbor proposed in this Article (5% of gross receipts) will result in underpayments or overpayments in too many cases.

It is certainly true that the simplified safe harbor formula for estimated tax payments—5% of the gross payment—relies on assumptions that will turn out not to be true for all taxpayers. For example, it assumes very few non-business deductions, and it assumes a 30% profit ratio that may be too high or too low for some workers.

But it is important to keep in mind that the 5% safe harbor is not intended to substitute for calculation of taxpayers’ actual tax liability. That is the function of Form 1040, the annual Individual Income Tax Return. The safe harbor is merely meant to be a simple way to give taxpayers some basis for making estimated tax payments. In this respect, it is not unlike the statutory rule that allows taxpayers to avoid estimated tax penalties by paying at least 100% of their prior year’s tax liability in estimated taxes.²⁰² In many cases, basing estimated tax payments on last year’s tax liability will result in significant underpayment or overpayment of estimated taxes; this will be true whenever the taxpayer’s current income is significantly different than the prior year’s income. (It will also be true if the taxpayer has a different tax situation from the prior year due to a change in marital status, dependents, deductions, or credits.) However, Congress has a made a rational decision to allow taxpayers to use last year’s tax liability as a reasonable basis to estimate taxes for the purpose of avoiding penalties. The 5% formula would have the same function.

Furthermore, the simplified safe harbor adds an alternative that is meant to better estimate the current year’s tax liability based on current earnings. This not only allows taxpayers to make payments without having to find last year’s tax return, but it also is more likely to help taxpayers avoid owing significant tax with their year-end tax return that they might not have budgeted for.

Further, using a fixed percentage of gross payments as a starting point, such as the 5% proposed in this Article, makes it much easier for taxpayers to make individualized adjustments to reflect their tax situation. For example, if a platform worker makes estimated payments based on 5% of their gross payments but ends up owing $1,000 with their tax return, they might decide to adjust the payments to 6% the following year. If they still owe money and prefer a refund, they might upward adjust to 7% the next year, and so on, until they are happy with their year-end tax situation. Relating estimated tax payments to a fixed percentage of gross payments gives taxpayers a better understanding of how their taxes relate to their earnings and more agency over the process of paying estimated taxes.

3. Quarterly 1099s Would Be Unfair to Low Income Workers

Finally, in the wake of the recent expansion of the 1099-K rules to cover more online transactions, some politicians and interest groups have claimed the rules imposed an unfair tax on low-income workers. For example, Senator Rick Scott released the following statement:

President Biden claims he won’t raise taxes on anyone making less than $400,000, but that’s a lie – he’s already done it. Along with trillions in unnecessary and unrelated in spending in the American Rescue Plan, Biden inserted a tax increase on gig workers, like hardworking Americans that work as drivers for Uber, Lyft or DoorDash.²⁰³

Similarly, the Coalition for 1099-K Fairness warned the new requirements would create “new IRS paperwork burdens” for small businesses.²⁰⁴ These same politicians and interest groups would likely repeat these arguments in response to the proposal for quarterly 1099s.

On one hand, the critique that more tax information is unfair to taxpayers themselves, particularly that it imposes a tax increase on them, is the easiest of all to address because it is based on a fallacious premise. However, because the argument is largely rhetorical, it may be the most pernicious.

Importantly, changes to information reporting rules are not changes to substantive tax law, so they cannot be correctly described as imposing a new tax or a tax increase. It has always been the case that platform income is subject to tax.²⁰⁵ The previous $20,000 threshold for receiving a 1099-K was not a rule that exempted transactions under $20,000 from income and self-employment tax. The rule simply triggered an obligation on the payer to send a Form 1099-K. It has always been the case that taxpayers are supposed to track and report earnings under the 1099 threshold.²⁰⁶ (Whether they do so is another story, but willfully failing to do so is tax evasion.²⁰⁷)

Although it might be politically persuasive to advocate leaving platform workers alone when it comes to their taxes, there is no valid reason that providing them with more information and with simplified instructions on how to pay their taxes is harmful. The only reason to withhold such information would be to give taxpayers a plausible basis for not paying their taxes.

There has been one line of critique about taxpayer burden that has merit, which is that the new 1099-K rules may be overbroad and cause confusion and anxiety for taxpayers (like sellers of used goods) who do not owe any tax.²⁰⁸ It is for this reason that the proposal in this Article does not cover sellers of goods but instead is aimed only at industries (like ridesharing services) that have an established history of earning taxable income. If, in the future, Congress decides to more narrowly tailor the 1099-K reporting rules to certain industries or income thresholds, Form 1099-ES could track these changes. In other words, the goal of quarterly 1099 reporting would always be to provide regular information to taxpayers that owe taxes and not to send needless forms to taxpayers who do not have estimated tax payment obligations.

CONCLUSION

Paying one’s taxes correctly and on time is exceptionally hard, especially for independent contractors. With the exception of employee withholding, our current tax system does very little to make paying federal taxes easy for people. Yet, the threat of punishment for getting it wrong looms large in many taxpayers’ minds. Perhaps nowhere is this sentiment better captured than in a 2020 viral TikTok video about paying taxes, which has earned over 2.2 million likes to date.²⁰⁹ The video is a parody of an interaction between a young taxpayer and an IRS agent, with the following dialogue:

Taxpayer: Hi, I’m 18 years old. This is my first time paying taxes. I really don’t know what I’m doing. Can you tell me how much I owe and I’ll just pay it?

IRS: No, we can’t do that. You have to figure out that amount for yourself.

Taxpayer: Oh, ok. If I’m just a little bit off in the amount that I owe, it’ll be ok because it’s my first time, right?

IRS: Oh no, we already know how much you owe, exactly, I mean, down to the penny, but you still have to figure that out for yourself.

Taxpayer: Well, what if I get that amount wrong?

IRS: You go to federal prison.

The post is humorous because of the truth that underlies it.²¹⁰ It portrays a system that borders on absurd: we expect compliance and accuracy from taxpayers, with the threat of punishment for noncompliance, with virtually no help from the government with getting it right.

This Article focuses on one of the most confusing yet important obligations for platform workers and other independent contractors: figuring out how and when to pay their estimated taxes. The proposal for quarterly 1099s is not a panacea, but it could go a long way towards helping taxpayers budget for taxes, calculate an estimated payment, and make their payments on time.

More importantly, although the proposal is modest in scope, it is also a call to policymakers to rethink the role of third-party tax information more broadly. While deterrence and monitoring taxpayers will always be crucial aspects of tax enforcement, tax information can also empower taxpayers. In this respect, third-party information returns should be thought of as sending an informational nudge to the taxpayer, rather than just reporting information to the IRS. Just as monthly bills help customers pay for services, quarterly 1099s would help taxpayers calculate and stay on top of quarterly tax payment obligations. This reform would not only raise revenue, but it would also be a much-needed step towards simplifying and demystifying the tax system for individual taxpayers.

97 S. Cal. L. Rev. 1527

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Kathleen DeLaney Thomas*

* Aubrey L. Brooks Distinguished Professor of Law, University of North Carolina School of Law. I am grateful to Leigh Osofsky and Courtney Thomas for helpful feedback on this Article.

Common Heritage as Public Trust: A Property Law Approach to Managing Resources Beyond National Jurisdiction

October 2024October 2024Christopher Mirasola*

The search for rare minerals is taking us well beyond the bounds of national jurisdiction, and international law is struggling to keep up. In the 1970s states agreed that the deep seabed beyond national jurisdiction was the “common heritage of mankind,” a doctrine that was ultimately codified in the United Nations Convention on the Law of the Sea. The common heritage doctrine has, from the outset, been something of a chimera. And fears over its association with redistributive economic policies led to the failure of an agreement regulating activities on the moon. Yet the doctrine exists as a going concern in international law. Deep seabed mining is on track to begin in 2024. The United Nations is presently considering international rules for asteroid and lunar mining. And efforts to protect marine biodiversity continue to rely on the idea that certain resources are our common heritage. If states are to deal productively with any of these issues, we need a revitalized approach to the common heritage doctrine.

Instead of embodying a static set of legal precepts, I argue for a flexible understanding of the common heritage doctrine rooted in theories of commons property that is sensitive to the peculiarities of specific natural resources. A fruitful exemplar of such an approach is the public trust doctrine of U.S. property law. Sharing with the common heritage doctrine a common foundation in Roman principles of common property, the public trust doctrine recognizes that governments hold certain natural resources in trust for the beneficial use of their citizens. By imposing this duty, and by limiting the purposes for which governments can use these resources, the public trust doctrine is a prototypical example of property as a set of governance rules. Drawing on the public trust doctrine’s rich common law and scholarly history, I propose a four-part framework for a public trust approach to the common heritage doctrine.

To demonstrate the opportunities made available by this approach, I take outer space mining as a case study and I propose steps that states can take to incrementally govern resource extraction in a manner more likely to attract international consensus.

INTRODUCTION

There is an inconvenient truth to our push towards a renewable energy future—it requires a stupendous amount of hard-to-find minerals. The growing fleet of electric vehicles, for example, all need high-capacity batteries that rely on lithium, nickel, cobalt, manganese, and graphite.¹ To be sure, we already mine for these minerals—the Energizer Bunny has been going for quite some time.² But future demand for them is unprecedented. The International Energy Agency has found that, since 2010, the average amount of rare earth minerals required for a unit of generated power increased fifty percent.³ Based on current energy policies, demand for rare earth minerals will double by 2040.⁴ And if we are to meet the goals of the Paris Climate Agreement to stabilize warming below a two-degree Celsius increase, demand will quadruple over the same timeframe.⁵

There are significant geopolitical ramifications to this shift in energy production. Mining for and refining rare earth minerals is, at present, highly concentrated. Sixty-nine percent of cobalt, for example, is produced in the Democratic Republic of Congo.⁶ Fifty-eight percent of the world’s lithium reserves are in Bolivia, Argentina, and Chile, and just over half of all current production is in Australia.⁷ Other rare earth minerals are disproportionately concentrated within China.⁸ All of which has led U.S. policymakers to prioritize diversifying this supply chain by providing substantial financial incentives to locate and develop domestic mineral production.⁹

This race to secure minerals is leading states and private industry to remote locales—areas “beyond national jurisdiction”—and particularly the deep seabed and celestial bodies. Under the law of the sea, areas of the seabed that are, at a minimum, 350 nautical miles from the coast are beyond national jurisdiction.¹⁰ And in outer space law, all celestial bodies, including asteroids and the moon, are not susceptible to sovereign claims.¹¹ In July 2023, the international organization charged with regulating deep seabed mining¹² began accepting applications that may, by 2024, pave the way for the first commercial mining operation beyond national jurisdiction.¹³ In April 2023, the most recent in a string of outer space mining startups launched a satellite to test equipment designed to refine metals mined from asteroids.¹⁴ Another test, into deep space, is scheduled for late 2024.¹⁵ Many states and private entities have near-term plans for human settlements on the moon.¹⁶ Such settlements will necessarily rely on extracting lunar resources.¹⁷ States take these developments seriously. The United Nations Committee on the Peaceful Uses of Outer Space (“UNCOPUOS”) is in the midst of a five-year program to develop more detailed international rules for exploiting outer space resources.¹⁸

These first steps toward mining in areas beyond national jurisdiction are controversial. A coalition of states and non-profits are calling for a moratorium on deep seabed mining to forestall the attendant probable, and likely irreversible, environmental damage.¹⁹ Similarly, there was significant international condemnation when the United States, in 2015, enacted domestic legislation recognizing the property rights of U.S. entities that extract resources from celestial objects.²⁰

All of this supercharges a decades-old debate in international law—who owns the resources available in areas beyond national jurisdiction? One of the key legal innovations of the 1970s was to characterize such resources as the common heritage of mankind (now often referred to as the common heritage of humankind). Part XI of the 1982 United Nations Convention on the Law of the Sea (“UNCLOS”) provides that resources of the seabed beyond national jurisdiction are the common heritage of mankind.²¹ Similarly, the Outer Space Treaty provides that “[t]he exploration and use of outer space . . . shall be carried out for the benefit and in the interests of all countries . . . and shall be the province of all mankind.”²² More controversially, as no spacefaring nations have acceded to it, the Moon Agreement explicitly provides that “the moon and its natural resources are the common heritage of mankind.”²³

What does it mean for a territory or resource to be the common heritage of humankind? Attempts to pin down the concept as a matter of black letter international law are unsatisfying. At a minimum, it appears to mean that the territory is not susceptible to claims of sovereignty or jurisdiction and that the territory may only be used for peaceful purposes. Yet on myriad other fronts—whether the mining must be undertaken in a manner that particularly benefits developing economies, whether an international organization is required to administer access to resources, the terms on which access may be provided, and so forth—states and scholars have fundamentally disagreed for decades.

I propose rethinking the common heritage of humankind by analogizing to the public trust doctrine, a longstanding principle of U.S. property law. I am not the first to draw international resource management lessons from the public trust doctrine. Hope Babcock, for example, has argued that it is a helpful model for establishing an international legal regime for outer space mining.²⁴ I take this proposal one step further, to flesh out a four-part framework that states can use to adopt property rules sensitive to the particularities of disparate natural resources in areas beyond national jurisdiction.

The public trust doctrine is itself a controversial principle of U.S. property law. As I discuss in Part II, it has also been the subject of significant scholarly criticism and debate. In a nutshell, the doctrine provides that there are certain natural resources that, by sovereign right, State governments hold in a kind of public trust for general use and enjoyment. The doctrine was made famous by Illinois Central Railroad Company v. State of Illinois, wherein the Supreme Court found that the Illinois legislature’s decision to completely alienate a portion of Chicago’s waterfront for private development by the Illinois Central Railroad violated the public trust doctrine.²⁵ Although Illinois Central is often the first case discussed when explaining the public trust doctrine, it was not the first U.S. public trust doctrine case. The New Jersey Supreme Court first noted the State’s trust duties with respect to navigable rivers, the coastline, and riverbeds in the early 1800s, drawing on English common law and principles of Roman property law.²⁶ The scope of the doctrine, however, expanded radically over time, impelled importantly by an intervention from Joseph Sax in 1970.²⁷Although slightly different in each State,²⁸ in its most robust form the public trust doctrine provides citizens standing to object to State governments’ decisions about water use and conservation and use of public lands.

Notwithstanding its variation across State lines, the public trust doctrine is a productive foundation from which to reimagine the common heritage of humankind. First, over the past forty years State supreme courts have productively used the doctrine to manage water consumption, particularly in Hawaii and California.²⁹ Second, and more generally, the public trust doctrine orients us to the range of substantive ends that a legal regime concerned with access to commons resources can achieve. Third, it attunes us to the relationships to which we must attend in creating these property law rules. And fourth, it moves us away from the entrenched debates over process and redistribution that have so stymied broader application of the common heritage doctrine.

My argument proceeds in four parts. Part I explains the problem: What is the common heritage of humankind, and why has it failed to meet the aspirations of its original proponents? Part II justifies using a public trust approach to the common heritage doctrine. I begin by setting out the contours of the public trust doctrine and arguing why a commons approach to managing resources in areas beyond national jurisdiction is appropriate. I go on to explain the shared historical roots of the two doctrines in Roman law, as well as what these shared roots should mean for our understanding of a public trust approach to the common heritage of humankind. I demonstrate the striking similarity in how these doctrines revolutionized their respective areas of law in the middle of the twentieth century. I argue that these similarities speak to a deep theoretical continuity between the doctrines and that a significant body of scholarship concerning commons property justifies using the public trust as a model for a modern common heritage doctrine.

Part III sets out the four-part framework for a public trust approach to the common heritage of humankind. This is a framework for institutional design, and accounts for: (1) the tangible objects to which the trust applies (that is, the res); (2) the beneficiary for whom the res is in trust; (3) the means by which the res is conserved and the entity committed to conserving it (that is, the trustee); and (4) the process by which the beneficiary may vindicate the trust if the trustee fails in its duties. Taken together, this framework moves away from particular normative visions for the common heritage of humankind to show the paths that can be taken to manage resources in areas beyond national jurisdiction. In Part IV, I use outer space mining as a case study to demonstrate how a public trust approach to the common heritage doctrine opens up fresh avenues for resource management. I then offer some brief thoughts for future work in conclusion.

I. DEFINING THE COMMON HERITAGE OF HUMANKIND

The common heritage doctrine, in many ways, persists in spite of itself. Notwithstanding its codification in UNCLOS and the Moon Agreement, the only real consensus on its parameters has been that there is no consensus.³⁰ Indeed, prior to widespread adoption of UNCLOS, many disputed that it was a legal, as opposed to a political, proposition.³¹ In this Section I identify three core commitments we can reasonably ascribe to the common heritage doctrine: (1) common heritage territory is not subject to claims of sovereignty; (2) even in some de minimis way, exploitation of common heritage resources should benefit humanity writ large; and (3) common heritage territories may only be used for peaceful purposes. I show why UNCLOS’s tortured ratification history and the failure of the Moon Agreement prevent us from imputing much else to the doctrine. Finally, I identify three areas of confusion, essential for operationalizing the doctrine, that remain: (1) the territories or things to which the common heritage doctrine should apply; (2) the international mechanism, if any, required to implement it; and (3) the beneficiary of the doctrine and the benefit accruing to them.

The Vienna Convention on the Law of Treaties directs that treaty provisions be interpreted “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose.”³² The Convention provides for an expansive search for a treaty’s context, taking into account all treaty text and any agreements made between all parties regarding the treaty.³³ Further, the Convention directs that treaty interpretation should account for subsequent agreements and state practice in applying the treaty.³⁴

A. Purpose of the Common Heritage Doctrine

There is a strong case that the original object and purpose of the common heritage doctrine was to concretely advance the redistributive economic agenda of the new international economic order. This is evident in what is often credited as the birth of the doctrine, a 1967 speech by Maltese Ambassador Arvid Pardo.³⁵ But even Ambassador Pardo would have admitted that the roots are, in fact, much older. Earlier in 1967, Ambassador Aldo Armando Cocca, in the context of the emerging field of outer space law, argued that “the international community had endowed that new subject of international law—mankind—with the vastest common property (res communis humanitatis) which the human mind could at present conceive of, namely outer space itself, including the Moon and the other celestial bodies.”³⁶ Comments by U.S. officials during the 1960s endorsed a similar view.³⁷ Indeed, in the text of his 1967 speech Pardo noted the work of the 1967 World Peace Through Law Conference,³⁸ which resolved that the General Assembly should issue “[a] proclamation declaring that the non-fishery resources of the high seas, outside the territorial waters of any State, and the bed of the sea beyond the continental shelf, appertain to the United Nations and are subject to its jurisdiction and control.”³⁹

What differentiated these earlier statements from Pardo’s speech, more than anything, was his concern that international law, as it existed, was not sufficient to meet the challenges of decolonization. His speech began by noting in exacting detail the deep seabed’s unrealized commercial potential⁴⁰ and the strategic instability that would result from the unfettered militarization of the seabed.⁴¹ Ambassador Pardo argued that existing international law doctrines concerning territorial acquisition were insufficient to protect newly liberated states.⁴² Specifically, Pardo called for using the “financial benefits . . . derived from the exploitation of the sea-bed and ocean floor for commercial purposes” to assist “poor countries, representing that part of mankind which is most in need of assistance.”⁴³

These concerns were highly resonant of his political environment. The pace of decolonization quickened rapidly in the 1960s, and with it a widespread urgency to restructure basic premises of international politics.⁴⁴ This urgency partly manifested in the “new international economic order,” an important goal of which was to reorient the law of the sea to benefit developing states more directly.⁴⁵ Indeed, a central tenet of the “new international economic order” was to reorient the law of the sea to benefit developing states through the common heritage doctrine.⁴⁶

These overarching objectives continued to inform the doctrine’s earliest textual articulations. General Assembly Resolution 2749, for example, declared that “the sea-bed and ocean floor, and the subsoil thereof, beyond the limits of national jurisdiction . . . as well as the resources of the area, are the common heritage of mankind.”⁴⁷ It went on to provide that this area is not “subject to appropriation by any means” and that “no State shall claim or exercise sovereignty or sovereign rights over any part thereof.”⁴⁸ The resolution also reserved the area “exclusively for peaceful purposes” and noted that resource extraction in the area “be carried out for the benefit of mankind as a whole . . . taking into particular consideration the interests and needs of the developing countries.”⁴⁹

B. Textual Articulations of the Common Heritage Doctrine

We can most vividly see how the common heritage doctrine failed to achieve these redistributive aims in the only two areas of international law in which the doctrine is incorporated into treaty text—the law of the sea and outer space law.

Efforts to codify the law of the sea in treaty form date to the mid-1950s.⁵⁰ We are concerned with the third conference on the law of the sea, which began in 1973 and ended in 1982 with the adoption of UNCLOS.⁵¹ The common heritage doctrine is codified in part XI of UNCLOS, which concerns “the Area”—a region of the seabed beyond a state’s exclusive economic zone and continental shelf.⁵² UNCLOS provides that the “Area and its resources” are the common heritage of mankind.⁵³ It proceeds to track the three commitments noted above. First, activities in the Area must “be carried out for the benefit of mankind as a whole.”⁵⁴ More specifically, hewing closer to the Pardian vision, these benefits must “tak[e] into particular consideration the interests and needs of developing States and of peoples who have not attained full independence.”⁵⁵ Second, part XI prohibits any state from exercising “sovereignty or sovereign rights” over the Area or its resources.⁵⁶ Finally, it provides that the Area may only be used for peaceful purposes.⁵⁷

The treaty then provides, in truly astonishing detail, an international bureaucracy designed to administer the Area for the benefit of humanity, with a particular emphasis on realizing the treaty’s redistributive aims. I will sketch them only in brief. UNCLOS establishes two organizations to realize deep seabed mining—the International Seabed Authority (“the Authority”)⁵⁸ and “the Enterprise.”⁵⁹ While the Authority is charged with generally administering and setting mining regulations, the Enterprise is arranged to operate as an independent mining concern. UNCLOS provides that proceeds from mining approved by the Authority, or undertaken by the Enterprise, be provided to adversely affected land-based mineral producers, geographically disadvantaged states, and developing countries.⁶⁰ To maximize these proceeds, UNCLOS also provides myriad ways in which states must support the Enterprise particularly. Its operating budget comes from fees collected by the Authority,⁶¹ voluntary payments from states parties, and loans.⁶² States and private mining companies are also required to provide any technical support requested by the Enterprise.⁶³ To help the Enterprise identify areas for potential mining operations, UNCLOS establishes a banking system. Each time a state or private entity wants to apply to prospect or mine in the Area, they must provide two locations, one of which is reserved for the Enterprise.⁶⁴ On top of these institutional arrangements are a number of limitations on extraction and required financial distributions to underdeveloped economies. For example, UNCLOS prescribes a detailed mathematical formula for setting production limitations on seabed mining to protect the interests of states that rely on land-based mining.⁶⁵

Developed economies strongly objected to this institutional apparatus.⁶⁶ Although the Nixon Administration had supported characterizing the Area as the common heritage of mankind, prohibiting sovereign claims, and establishing some mechanism for distributing profits “for international community purposes including economic advancement of developing countries,” by the Carter Administration opposition to the regime was solidifying.⁶⁷ By 1983, with President Reagan in office, the United States registered its dissatisfaction with the Authority’s governance structure, perceived preference for developing countries’ interests, production limits, and financial burdens by voting against the convention.⁶⁸ Most other developed economies followed suit.⁶⁹

Recognizing that a deep seabed regime without participation from developed countries would amount to little, and in a moment of renewed interest in neoliberal economics after the fall of the Soviet Union, in 1990 the United Nations began to craft an agreement concerning part XI.⁷⁰ This process culminated in the 1994 Implementation Agreement—in actual fact a rewriting of part XI to convince developed states to join UNCLOS. The changes were significant. They struck out provisions requiring the transfer of technology to the Enterprise.⁷¹ The Enterprise was directed to operate on “sound commercial principles,” deprived of required contributions from states parties, and put in an indefinite “interim” status.⁷² Complex models prescribing the rates that could be charged for mining contracts were replaced with general guidelines requiring “fair” rates comparable to those prevailing in land-based mining.⁷³ Representation on the Authority’s Council was revised to ensure that the United States and other developed countries could stymie any proposed distribution of Authority or Enterprise funds to developing countries.⁷⁴ And the banking system was revised such that the entity applying for a mining permit now had the right of first refusal to enter into a joint venture with the Enterprise.⁷⁵ These changes were effective in getting developed states to adopt UNCLOS. The Convention has been ratified by 165 of 193 UN member states. Yet these changes eviscerated the redistributive aims actualized by the original text of part XI.

The common heritage doctrine’s failure to launch in outer space law draws from these acrimonious UNCLOS debates. There are five international agreements regarding outer space activities: the Outer Space Treaty,⁷⁶ the Rescue and Return Agreement,⁷⁷ the Liability Convention,⁷⁸ the Registration Convention,⁷⁹ and the Moon Agreement.⁸⁰ Of these, the first four have been widely adopted by all spacefaring, and many non-spacefaring, states.⁸¹ The Moon Agreement—the only one with an explicit reference to the common heritage doctrine—has been ratified by eighteen states, none of which have a significant, independent space program.

The Outer Space Treaty provides that the “exploration and use of outer space . . . shall be the province of all mankind.”⁸² There has been much debate as to whether the “province of all mankind” is substantively different from the “common heritage of mankind.”⁸³ But looking to the remaining text of the Outer Space Treaty shows how, regardless of any difference in titles, the “province of all mankind” is strikingly similar to what remains of the common heritage doctrine after the 1994 Implementation Agreement. For example, article I provides that “[o]uter space . . . shall be free for exploration and use by all States without discrimination of any kind.”⁸⁴ Article II similarly establishes that outer space “is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.”⁸⁵ And article IV directs that “[t]he Moon and other celestial bodies shall be used by all States Parties . . . exclusively for peaceful purposes.”⁸⁶

At the same time that debates about the common heritage of mankind were dividing states during UNCLOS negotiations, states similarly turned to debate more detailed questions about the permissible uses of celestial objects. How may states use resources located on celestial bodies? What benefits must accrue to humanity through their use? What duties are incumbent on states when using them? With striking similarity to law of the sea debates, some called for the United Nations (or another, specially designed international agency) to be vested with authority over celestial objects, and granted the ability to provide leases or licenses for resource extraction.⁸⁷ But ultimately, just as in UNCLOS negotiations, intense disagreements over the common heritage doctrine⁸⁸ yielded contradictory text unacceptable to states concerned that they were signing up for an incoherent doctrine likely to develop in directions over which they would have little control.⁸⁹

C. Unanswered Questions

This analysis of treaty text leaves three key doctrinal questions unanswered, each the subject of considerable scholarly debate. First, there is a vast volume of writing on the territories or objects to which the common heritage doctrine should apply (that is, the res of the doctrine). Some have identified a “broad” vision, one that applies to “atmospheric air, biodiversity, forests, drinking water margin[s], [and] cultural and natural heritage.”⁹⁰ Efforts to use the common heritage doctrine to protect the environment⁹¹ and the atmosphere (as a tool to combat climate change) date back at least to the 1980s.⁹² Others have called for using the common heritage doctrine to protect rain forests and food systems,⁹³ fauna and flora of the deep seabed,⁹⁴ biodiversity,⁹⁵ and marine genetic resources.⁹⁶ Nearly all of these attempts have been opposed by, at a minimum, developed states in a variety of international contexts.⁹⁷

Many states and scholars proposing a wider definition of the resources to which the common heritage doctrine applies also envision some formal, international enforcement mechanism (that is, the means by which the international community’s interests may be vindicated). This is particularly true for those states animated by a version of the common heritage doctrine born of the new international economic order movement.⁹⁸ The details of this proposed mechanism vary. One of the more inventive, proposed by Malta and endorsed by Kofi Annan during his time as UN Secretary General, is to repurpose the UN Trusteeship Council to be a forum for protecting common heritage resources.⁹⁹ An independent international body, like the Authority, is another option, though a variety of states, across ideological fault lines, have resisted such an approach. In the early days of the law of the sea conferences, for example, communist bloc states opposed the creation of an international organization like the Authority out of concern that it would not be truly democratic and only exacerbate the gaps between developed and developing economies.¹⁰⁰ Other states and scholars have similarly argued that creating a new international organization would be too unwieldy, instead endorsing a model whereby enforcement is left to individual states.¹⁰¹ Certainly neither approach is fool-proof. The issues with international bureaucracy are evident in the fact that it has taken nearly forty years for the Authority to develop rules for deep seabed mining. And the potential for backsliding without a mechanism for international enforcement is readily apparent in many states’ continued inability to meet emissions targets developed during UN climate change negotiations.¹⁰²

How the benefits of the common heritage should, or must, be distributed is perhaps the most controversial aspect of the doctrine. Stepping back, this is part and parcel of a broader question concerning what duties pertain to states as trustees of humanity’s interests. We saw this in the negotiating history of both UNCLOS and the Moon Agreement. The idea that benefits accruing to common heritage resources be distributed through direct payments that favor developing states¹⁰³ and requirements for technology transfer¹⁰⁴ have been particularly contentious. There has been equally vociferous debate about whether the common heritage doctrine creates a duty to conserve heritage resources.¹⁰⁵ At a more fundamental, if slightly metaphysical, level, scholars have also debated what, in fact, constitutes “humankind”—whether it refers to states, states on behalf of all people, or all people without interposition from any state.¹⁰⁶ Practically, it is difficult to imagine in the current international system any practical version of “humankind” that does not include, at least in a representative fashion, states.

The vision of the common heritage of humankind that first animated its inclusion in international treaty law greatly exceeded what remains of the doctrine in treaty text and actual practice today. We have seen the doctrine’s contentious codification in the law of the sea, and we have witnessed how it foundered in outer space law. Taken together, we are left with a vision of the common heritage doctrine that is at once freighted by historical association with redistributive policies, and yet which, in practice, has few concrete hooks to advance these goals. This contradictory status quo does little to foster doctrinal clarity or productive negotiations about methods for managing resources in areas beyond national jurisdiction. In the remaining sections, I set out to sketch a new path.

II. JUSTIFYING A PUBLIC TRUST APPROACH TO THE COMMON HERITAGE DOCTRINE

If the common heritage doctrine is to become a meaningful proposition in international law, we need a new approach. In this Section, I argue why looking to the public trust doctrine is instructive. First, the doctrines share similar normative impulses, evinced over a long history, that make this analogy particularly apt. Proponents of the public trust and common heritage doctrines, for example, both trace their legal arguments back to the same provisions of Roman law. Moreover, the primary innovators of both doctrines in the 1960s and 1970s had a similarly instrumental vision for the legal framework they set out to establish—a vision more fully realized by the public trust doctrine. Second, the public trust doctrine provides a coherent approach to managing common pool resources in a manner that, at a practical and theoretical level, coheres with general principles of property law. And finally, although the public trust doctrine gained prominence primarily in domestic U.S. property law, it has gained international traction. As I propose to use it, the public trust doctrine provides a generalizable heuristic for devising rules to manage international resources.

This argument builds on a 2019 article by Hope Babcock, which discussed briefly the virtues of the public trust doctrine within a broader discussion of the many domestic property law doctrines that might be used to regulate outer space mining.¹⁰⁷ In particular, Babcock noted the practical benefits to adopting a duty to preserve resources, assure public access, and prevent alienation in the absence of a robust international ruleset for outer space mining.¹⁰⁸ I expand on this argument in three ways. First, I show that the public trust doctrine can inform our approach to the common heritage doctrine writ large, in contexts far beyond outer space. Second, I develop the historical and theoretical reasons why this analogy should be attractive to states looking for a more comprehensive approach to international resource management. Third, I explain in detail what a public trust approach to the common heritage means through a four-part framework, detailed in Part III.

A. Why a Commons Approach to International Resource Management

Anyone advocating that we reinvigorate the common heritage doctrine must first justify why resources beyond the bounds of national jurisdiction should be treated as a commons. Why not, instead, simply divvy them up? This, after all, is the compelling insight proffered by Garrett Hardin in his work on the tragedy of the commons.¹⁰⁹ Hardin posits that, in a world of rational herdsmen, each with equal and unfettered access to a pasture, the “only sensible course for him to pursue is to add another animal to his herd. And another; and another.”¹¹⁰ Inexorably, Hardin tells us, “[r]uin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.”¹¹¹ He was not the first to make this point. Aristotle also observed that “what is common to the greatest number has the least care bestowed upon it. Everyone thinks chiefly of his own, hardly at all of the common interest.”¹¹²

But we know that this simple picture of a tragic commons and complete allocation of rights (whether through allocation of private property rights or government management) is incomplete. Michael Heller, for example, warns of the dangers of too much allocation of private rights in resources. In what he terms a tragedy of the anticommons, real property may be underutilized when too many users are granted the right to exclude others from a scarce resource if no hierarchy of privilege exists between these users.¹¹³ Economic modeling has borne out this analysis,¹¹⁴ though some have argued for a more precise articulation of the game theoretic problem appropriately denominated an anticommons.¹¹⁵ But even this represents an overly narrow view of the practical ways in which resources are managed. Elinor Ostrom, for example, has empirically demonstrated how communities have developed private agreements to manage common pool resources, enforced by a variety of institutional mechanisms that go beyond simple division of property rights or government management.¹¹⁶ Specifically, she notes that achieving Pareto-optimal equilibrium in the market for a particular resource through centralized resource management rests on assumptions that the government has completely accurate information about the resource, sophisticated capability to monitor and sanction compliance, and zero administration costs.¹¹⁷ This does not mean that Ostrom denies any role for the government or an external monitor in managing common pool resources. For example, speaking to those who advocate for privatized rights, Ostrom notes that it can be practically infeasible with respect to nonstationary resources, like water and fisheries.¹¹⁸ Instead, she argues that there is no single solution to resource management.¹¹⁹ Institutional design is difficult, time-consuming, and context dependent. More often than not, some mixture of private and public institutions is needed “to achieve productive outcomes in situations where temptations to free-ride and shirk are ever present.”¹²⁰

A commons approach to international resource management in areas beyond national jurisdiction is particularly appropriate for a number of the reasons outlined above. Although the mineral resources of the deep seabed are certainly stationary, the marine life of the high seas that these operations would disturb do not respect jurisdictional boundaries. On any reasonable assessment of the International Seabed Authority’s track record, its role as a centralized arbiter of resource rights is far from cost free. In outer space, given how little we know about the productive uses of asteroids and other celestial objects, there is a real risk of dividing property rights so finely as to create an anticommons. Moreover, at least at present, there is no centralized authority empowered to penalize free riding, and the likelihood of establishing such an authority seems dim in our current geopolitical environment. Before adopting an entirely new system of property rights, it therefore seems reasonable to find a way to make a commons approach to managing resources beyond national jurisdiction work.

B. Defining the Public Trust Doctrine

Perhaps more than many common law principles in U.S. law, the public trust doctrine varies significantly from State to State. Put most simply, it provides that the State holds title to land under tidal waters in a form of trust for the people of that State, who “have the right to use the land and water for navigation, fishing, and recreational uses.”¹²¹ Two of the most far-reaching applications of the public trust doctrine were rendered by the California and Hawaii Supreme Courts. I will treat them both in turn, as demonstrations of the kind of work that the public trust doctrine does in modern U.S. property law.

In National Audubon Society v. Superior Court, the California Supreme Court addressed whether, and how, the public trust doctrine affected the State’s system for prioritizing access to fresh water, with a particular focus on use of water from Mono Lake, a particularly distressed reservoir for fresh water in the Los Angeles County area.¹²² It found that the public trust doctrine did apply to these water resource decisions, and is an articulation of:

[T]he state’s authority as sovereign to exercise a continuous supervision and control over the navigable waters of the state and the lands underlying those waters. This authority applies to the waters tributary to Mono Lake and bars [the City of Los Angeles Department of Water and Power (“DWP”)] or any other party from claiming a vested right to divert waters once it becomes clear that such diversions harm the interests protected by the public trust.¹²³

This application of the public trust doctrine to California’s system of water rights had significant effects on life in California, where, as the court acknowledged, “[t]he prosperity and habitability of much of the state required the diversion of great quantities of water from its streams for purposes unconnected to any navigation, commerce, fishing, recreation, or ecological use relating to the source stream.”¹²⁴ Nevertheless, the court held that “before state courts and agencies approve water diversions they should consider the effect of such diversions upon interests protected by the public trust, and attempt, so far as feasible, to avoid or minimize any harm to those interests.”¹²⁵ Just as significantly, the supreme court also held that California courts and the DWP have “concurrent jurisdiction” in adjudicating these public trust disputes.¹²⁶

This decision had a significant practical effect on Mono Lake, which had experienced rapidly decreasing water levels since the State authorized DWP to divert flows from source streams in the 1940s.¹²⁷ By 2010, implementation of interim measures adopted in 1994 for lake and stream restoration and a final plan published in 1998 raised the lake’s water level by ten feet.¹²⁸ And these regulatory changes established a system of water rights that ensured consideration of public trust interests when adjudicating private water rights in the State.¹²⁹

The Hawaii Supreme Court in In re Water Use Permit Applications faced a similar dispute about allocation of water rights, here between agricultural producers in the central plains of Oahu, down-stream users on the windward side of the island, and the stream’s ecosystems.¹³⁰ The court held that the public trust doctrine, though having independent roots in common law, was a constitutional doctrine and applied to “all water resources without exception or distinction.”¹³¹ It further found that Hawaiian public trust purposes included resource protection,¹³² domestic use (including drinking),¹³³ and “the exercise of Native Hawaiian and traditional and customary rights.”¹³⁴ The court specifically found that the public trust should not consider interests in “private use for ‘economic development.’ ”¹³⁵ Unsurprisingly, the court found that Hawaii had a continuing obligation to “preserve the rights of present and future generations in the waters of the state,” though the courts did not require a one-size-fits-all prioritization of interests.¹³⁶

Although the public trust doctrine is, in many jurisdictions, of rather limited application, the California and Hawaii examples show how it currently serves as a doctrine for resource management.

C. Shared Roots of the Common Heritage and Public Trust Doctrines

In this Section, indebted to the work of J.B. Ruhl and Thomas McGinn, I unpack what the res communis meant.¹³⁷ I trace in brief how the public trust and common heritage doctrines developed this concept of the res communis. And I show how debates over the contours of the res communis demonstrate the necessary role of state action to preserve access to common resources. I do not, however, want to burden this connection with too much normative force. Particularly in the context of the public trust doctrine, some have relied on this Roman pedigree to justify the doctrine’s place in modern property law.¹³⁸ But as we will see below, the modern common heritage and public trust doctrines advertently moved beyond the idea of common property enshrined in Roman law. So, while the Roman origins of both doctrines does not make a public trust approach to the common heritage doctrine legally or normatively required, it is nonetheless useful to show how the doctrines are united by a higher-level conviction that there are certain resources that should be held in some form of trust for common use in a way that is not readily accommodated by private or government ownership.

1. Origins in Roman Property Law

Before we trace the public trust and common heritage doctrines to their Roman roots, a bit of background on the res communis—the Roman concept of common property to which both doctrines refer. The res communis stood for the proposition that certain things (at a minimum, the sea, seashore, and air) should remain accessible to all, primarily for resource extraction, and this access could be vindicated at law.

To understand the res communis we must begin with the restatement of Roman law provided in the Corpus Juris Civilis, promulgated by Emperor Justinian from 529 to 534 CE.¹³⁹ The Corpus has three main parts: the Institutes (an introductory guide to Roman law),¹⁴⁰ the Digest (a detailed guide for more advanced study),¹⁴¹ and the Codex (a compilation of imperial legislative, judicial, and administrative enactments stretching from the reign of Emperor Hadrian to the Codex’s publication).¹⁴² Of the many ways in which the Roman jurists categorized types of property, the Second Book of the Institutes provides, for our purposes, the most important:

Let us now speak of things, which either are in our patrimony, or not in our patrimony. For some things by the law of nature are common to all [i.e., res communis]; some are public [i.e., res publicae]; some belong to corporate bodies [i.e., res universitatis], and some belong to no one [i.e., res nullius]. Most things are the property of individuals, who acquire them in different ways, as will appear hereafter.¹⁴³

Res communis is property outside our patrimony (i.e., extra patrimonium) and therefore incapable of private ownership.¹⁴⁴ The Institutes provides that the res communis includes, by natural law, “the air, running water, the sea, and consequently the shores of the sea.”¹⁴⁵ The Digest attributes this rule to Marcian, a noted Roman jurist from the third century,¹⁴⁶ though Ruhl and McGinn have identified earlier articulations of the same or similar rule as early as the late republic.¹⁴⁷

It is this definition of the res communis in the Institutes which most courts and scholars identify as the roots of the public trust and common heritage doctrines. Take, for example, Arnold v. Mundy,¹⁴⁸ one of the earliest cases in the United States on the public trust doctrine. Here, the New Jersey Supreme Court of Judicature found against a plaintiff’s claim of trespass concerning oyster beds planted below the low-water line in a navigable river.¹⁴⁹ The Chief Justice reproduced this provision of the Institutes nearly verbatim—both in English and Latin.¹⁵⁰ The Supreme Court, over two decades later confronting nearly the same issue in New Jersey, adopted this reference to the Institutes.¹⁵¹

Closer to the present day, Justice Kennedy in Idaho v. Coeur d’Alene Tribe of Idaho and PPL Montana, LLC v. Montana also attributed the public trust doctrine to this portion of the Institutes, as incorporated into English common law.¹⁵² Scholars of the public trust doctrine make similar, even more frequent reference to the same.¹⁵³

In international law, this Roman inheritance was used most famously by Hugo Grotius to argue that the seas, by their nature, were incapable of appropriation and therefore open to all for trade and fishing.¹⁵⁴ This greater emphasis on the freedom enjoyed at sea, rather than the guarantee of land access to the seas, is reflected in the relatively greater ambivalence taken toward the text by proponents of the common heritage doctrine. For example, as early as the 1830s, noted South American lawyer Andres Bello argued that a distinct legal regime was needed for objects that cannot be owned by any nation without harming others, what he called an “indivisible common patrimony” that was susceptible only to limited, non-exclusive use.¹⁵⁵ French jurist A.L. Pradelle came to a similar conclusion in 1898, arguing that the seas were the “patrimoine commun de l’humanité.”¹⁵⁶ These innovations were noteworthy primarily because they rebutted Grotius’s use of the res communis. Nevertheless, Ambassador Pardo, for example, cites this provision of the Institutes specifically in his proposal to establish the common heritage doctrine.¹⁵⁷ And other seminal works on the law of the sea make similar references to these provisions of Roman property law.¹⁵⁸

But what did it mean to designate the air, flowing water, sea, and shores of the sea as res communis, and how are these rights vindicated? There has been considerable debate on the topic; I will begin by discussing relevant provisions of the Digest and Institutes before turning to their interpretation by scholars.

First, various provisions of the Digest and Institutes note how designating territory as res communis guaranteed access to other resources that could be appropriated. So, for example, Florentinius characterizes the seashore as res communis and notes that “pebbles, gems, and so on which we find on the shore forthwith become ours by natural law.”¹⁵⁹ Similarly, the Institutes provides that “[w]ild beasts, birds, fish, and all animals, which live either in the sea, the air, or on the earth, so soon as they are taken by any one, immediately become by the law of nations the property of the captor; for natural reason gives to the first occupant that which had no previous owner.”¹⁶⁰ The Digest supports this proposition with a number of citations to even earlier legal opinion.¹⁶¹

Yet, as Ruhl and McGinn argue, the res communis appears to be about more than just providing unfettered access to the air, sea, and flowing rivers so that individuals can extract resources.¹⁶² To understand why, we must appreciate longstanding doctrinal confusion about the difference between the res communis and res publicae.

Ulpian describes as res publicae “those things . . . that belong to the Roman people.”¹⁶³ Similarly, Ulpian is quoted as providing that “[w]e do not regard as being ‘public’ those things which are sacred or hallowed or designed for public use but those things which are, as it were, the property of communities.”¹⁶⁴ In this way, it seems we might make a rough distinction between property to which all are guaranteed access regardless of their political community (that is, res communis) and property owned and preserved for the benefit of a particular group of peoples (that is, res publicae).

But this easy distinction is complicated by the many parts of the Digest that characterize flowing waters and the seashore (things considered res communis) as res publicae. First, with respect to flowing waters, the Digest in a number of places notes that rivers are public property.¹⁶⁵ And although the right to use riverbanks is said to be public,¹⁶⁶ there is also an admitted private right to privately own and construct private buildings on them.¹⁶⁷ A similar story can be told about the sea and the seashore. For although the sea is common to all, the Digest recounts that “just as a building erected in the sea becomes private property, so too one which has been overrun by the sea becomes public.”¹⁶⁸ Muddying the waters even more, we are told that

What a man erects on the seashore belongs to him; for shores are public, not in the sense that they belong to the community as such but that they are initially provided by nature and have hitherto become no one’s property. Their state is not dissimilar to that of fish and wild animals which, once caught, undoubtedly become the property of those into whose power they have come.¹⁶⁹

As Ruhl and McGinn demonstrate in detail, this overlap has bedeviled scholars since the middle ages.¹⁷⁰ From the eleventh through fifteenth centuries, for example, scholars reconciled these passages by holding that res communis resources were used, and not owned, by humans and animals, while res publicae resources were used only by humans.¹⁷¹ Scholars in the nineteenth century adopted other methods to make this area of law coherent, again mostly aimed at creating more nuanced distinctions between what should truly be considered res communis.¹⁷² Yet others in the twentieth century attribute the incoherence to revisions made by those compiling ancient sources of law.¹⁷³ And many more recent scholars, focusing on the less rigorously legal aspects of Marcian’s work, have discounted the existence of the res communis entirely.¹⁷⁴ In fact, these critiques of the underlying Roman law sources, and their inconsistent application in English and early American case law, is the basis for many academic critiques of the public trust doctrine.¹⁷⁵

Ruhl and McGinn instead reconcile this tension by focusing on Ulpian’s earlier writings on the res communis. They find textual evidence that, as a practical matter, access to res communis property was protected in the same manner as that provided for the res publicae.¹⁷⁶ For this reason, they argue, the rules applicable to res publicae should be seen as equally applicable to res communis.¹⁷⁷

There are important consequences that stem from this practical connection. As Ruhl and McGinn note, there are rules concerning uses of res publicae resonant of the idea of a public trust.¹⁷⁸ For example, the Digest reports that Scaevola opined that although one could build on the seashore, such construction could not impede public use.¹⁷⁹ Likewise, Ulpian wrote at length about the actions that could be taken against individuals who impede public access to res publicae.¹⁸⁰ In an indirect way, these areas of overlap suggest an early recognition of the necessary role that government must play if any property is to be considered common to all, and not just open to access by a particular political community (that is, res communis). It is unsurprising, then, that UNCLOS established an international organization through which states would preserve the deep seabed under the common heritage doctrine. And it suggests that future applications of the common heritage doctrine will be difficult to enforce without a similar international mechanism, or state duty, for vindicating humanity’s interests.

2. Common Twentieth Century Doctrinal Innovation

The middle of the twentieth century was critical to the modern incarnations of the common heritage and public trust doctrines. In this Section, I show how two protagonists—Ambassador Arvid Pardo and Professor Joseph Sax—expanded upon existing conceptions of common heritage and public trust to achieve their normative ends. They were both unabashedly instrumental—both saw these doctrines as convenient procedural vehicles to curing what they saw as deficiencies in their respective political environments. What emerges is a common appreciation of the flexibility that Elinor Ostrom noted as one of the signal characteristics of commons governance.¹⁸¹

We have already canvassed Ambassador Pardo’s revolutionary vision for the common heritage doctrine in Part I. Joseph Sax laid out a similar vision for the public trust doctrine, at around the same time, from the pages of the Michigan Law Review.¹⁸²

To understand the power of this vision, we must understand the public trust doctrine as it developed prior to Sax’s intervention. Up until Illinois Central, the public trust doctrine was a relatively constrained proposition, used chiefly to manage access to navigable rivers and the stationary resources (for example, oysters) on the riverbed. Chief Justice Taney in Martin v. Waddell’s Lessee may have been among the earliest to use the term “public trust” when, in denying a patent to an oyster fishery bed, he found that the kings of England held navigable waters “as a public trust.”¹⁸³ Importantly, he held that derogating from this right required “clear[] indicat[ion] by appropriate terms; and would not have been left for inference from ambiguous language.”¹⁸⁴ Just over a decade later the Supreme Court reaffirmed this approach in The Volant, finding that soil below the low-water mark “is held by the State, not only subject to, but in some sense in trust for, the enjoyment of certain public rights, among which is the common liberty of taking fish.”¹⁸⁵ Again, for this reason, the Court held that states “may forbid all such acts as would render the public right less valuable, or destroy it altogether.”¹⁸⁶

Justice Field, in Illinois Central, expanded the doctrine by articulating a more robust role for the courts to limit the legislature’s discretion to alienate public trust resources. Specifically, Justice Field found that “[t]he control of the State for the purposes of the trust can never be lost, except as to such parcels as are used in promoting the interests of the public therein, or can be disposed of without any substantial impairment of the public interest in the lands and waters remaining.”¹⁸⁷ This standard was controversial, and did not flow naturally from at least some States’ approaches to the public trust doctrine. In the dissent’s words, “if the State of Illinois has the power, by her legislature, to grant private rights and interests in parcels of soil under her navigable waters, the extent of such a grant and its effect upon the public interests in the lands and waters remaining are matters of legislative discretion.”¹⁸⁸

The extent of this shift is most vividly displayed in Morris v. United States.¹⁸⁹ Here, the Supreme Court rejected a claim to land added to the riverbank by a rapid shifting of the course of the Potomac River.¹⁹⁰ In doing so, the Court applied a straightforward understanding of the Illinois Central test that the public trust could not be entirely alienated for private use.¹⁹¹ Yet, as the Court acknowledged, this flatly contradicted the approach taken by Maryland courts dating back to 1821. For example, in Browne v. Kennedy,¹⁹² Chief Justice of the Maryland Court of Appeals Jeremiah Chase held that the Maryland legislature could sell land “covered by a navigable river” so long as the private use did not “interfer[e] with or affect[] the public or common right[s to] . . . navigation and fishing.”¹⁹³ The Supreme Court’s rather startling response to this contradiction was to note the myriad ways in which the Kennedy Court had misinterpreted prior Maryland case law.

Thereafter, the Court was inconsistent in how aggressively it hewed to Justice Field’s approach in Illinois Central. To name just a few, the Court later affirmed an Alabama statute granting tidewater rights to the city of Mobile,¹⁹⁴ upheld a Chicago ordinance requiring that a railroad dismantle a tunnel built pursuant to an earlier ordinance so that the riverbed could be dredged,¹⁹⁵ and upheld a New York Court of Appeals decision to strike down a statute incorporating a development company that did not provide a mechanism for the State to vindicate public trust rights.¹⁹⁶ Indeed, it was only in 1926 that this inconsistent approach to legislative treatment of trust resources was resolved by the Supreme Court determining that, though “the general principle” of Illinois Central had been “recognized the country over,” in its particulars, the holding was “necessarily a statement of Illinois law.”¹⁹⁷

It was into this commercial understanding of the public trust doctrine, rooted in Roman concerns for open access, that Joseph Sax launched his now famous article on the public trust doctrine. It is beyond dispute that Sax’s article sparked a sea change in the way State courts approached the public trust doctrine. From 1970 to 1985 alone there were nearly one hundred cases concerning the public trust doctrine, many of which cited Sax’s article.¹⁹⁸ And States have taken up Sax’s invitation to unshackle the doctrine from its historical roots in concerns over navigability and fisheries.¹⁹⁹ By the mid-1980s, courts had extended the public trust to include marine law, sand and gravel in water beds, dry sand areas of the beach, rural parklands, battlefields, wildlife generally, archaeological remains, and (in Louisiana) all natural resources, including air and water.²⁰⁰ Sax was similarly influential in identifying the mechanisms that State courts have adopted to enforce this expanded public trust. These include requiring that government action satisfy the public trust’s purpose, mandating that government action be preceded by an assessment of any adverse impact on trust resources, and searching for specific legislative authorization for agency actions that affect trust resources.²⁰¹ While some of these had hooks in early public trust case law, many were relatively novel applications of judicial power.

Sax’s role here is substantially similar to that of Ambassador Pardo and his contemporaries, acting only a few years earlier. Like Ambassador Pardo, Professor Sax makes an unabashedly normative argument, and I do not mean this as a critique. This undermines arguments made by later scholars who criticize Sax’s public trust doctrine as disconnected from English and Roman law sources. Sax states that he is in “search for some broad legal approach which would make the opportunity to obtain effective judicial intervention [for environmental protection] more likely.”²⁰² In particular, he is looking for a doctrine that satisfies three criteria: (1) “some concept of a legal right in the general public” that is (2) “enforceable against the government” and (3) “capable of an interpretation consistent with contemporary concerns for environmental quality.”²⁰³ Indeed, Sax owns up to the state of the law as he found it:

[O]nly the most manipulative of historical readers could extract much binding precedent from what happened a few centuries ago in England. But that the doctrine contains the seeds of ideas whose importance is only beginning to be perceived, and that the doctrine might usefully promote needed legal development, can hardly be doubted.²⁰⁴

Like Ambassador Pardo and his contemporaries, Professor Sax treats with, but advertently moves beyond, the res communis²⁰⁵ to achieve his environmental ends.

The bulk of Sax’s article is a detailed review of the public trust doctrine in the States, noting how particular cases might provide a hook for expanding judicial appetite for protecting environmental interests. So he praises Massachusetts courts for requiring that administrative agencies identify a “specific, overt approval of efforts to invade the public trust”²⁰⁶ and lauds Wisconsin courts for asserting the independent authority to assess whether State actions are consistent with public trust interests.²⁰⁷ These various strategies are united by a common desire to root the public trust doctrine in the protection of majority interests (which are asserted to be consistent with environmental protection) from regulatory capture by a powerful minority.²⁰⁸ And here again there is striking similarly between Ambassador Pardo’s call for using the wealth of the common heritage to advance the interests of newly decolonized states and Sax’s argument that “[p]ublic trust problems are found whenever governmental regulation comes into question, and they occur in a wide range of situations in which diffuse public interests need protection against tightly organized groups with clear and immediate goals.”²⁰⁹

Taken together, what emerges from this history is a tale of two doctrines that have much in common, both in their history and their aims. They both emerged from an understanding, rooted in antiquity, that there are certain resources not amenable to private or government ownership that nevertheless are of communal interest. As such, in their deepest past, both doctrines can trace to a common concern about access to resources. Both doctrines were similarly revolutionized by prominent intellectuals of the twentieth century, who themselves built on a growing wave of change that can be traced to the nineteenth century. Each seeking to address inequities in power, Professor Sax and Ambassador Pardo sketched out an instrumental vision for the public trust and common heritage doctrines that gained widespread popularity on an incredibly short timeline. More than sharing a common history, this Section shows that these doctrines are united by a common concern—managing resources seen as necessary for the public in a manner more accountable and more equitable than had thus far been achieved.

D. The Public Trust Doctrine as a Useful Framework for Resource Management

In this Section, I address the most common critiques of the public trust doctrine to show why it provides an approach to managing common pool resources that coheres with general principles of property law. Namely, I show how its substantive flexibility is consistent with scholarly work arguing that the nature (and indeed changing nature) of property rights can be profitably explained through the social values they produce and reproduce.

1. Criticism of the Public Trust Doctrine

Sax’s redefinition of the public trust doctrine has spawned a seemingly endless academic debate. Distilled to the most salient points, scholars contest three issues: (1) whether the public trust doctrine is a necessary, or constructive, tool for environmental protection;²¹⁰ (2) whether the public trust doctrine is sufficiently well-defined, by reference to its historical roots or modern case law;²¹¹ and (3) whether the public trust doctrine comports with democratic and rule of law principles. I will address the last of these debates, as it is most important for our purposes.

Huffman sees the public trust doctrine as an unprincipled property right that, by relying on shifting judicial notions of the res, confounds public expectations and thereby undermines democratic principles.²¹² He is similarly concerned by the fact that the public trust doctrine, by asserting a right incident to State sovereignty that predates any possible private rights, eviscerates protections afforded by the Takings Clause.²¹³

There have been at least three responses to this critique. One flows from what Sax identified as the role of courts in combating agency and legislative capture by minority interests—in effect, an argument that seemingly democratic processes are, in fact, anything but.²¹⁴ A second argues that changes in the scope of the public trust doctrine is quite normal in a common law system.²¹⁵ And a third points to the fact that courts, even when exercising a form of continuing review of State action, rarely impose a substantive outcome. Instead, they use the power afforded by judicial review to require that State instrumentalities meaningfully take into account public trust interests²¹⁶ (though, of course, there may be significant overlap between requiring a substantive outcome and insisting on a method of agency decision-making).

2. The Public Trust Doctrine as a Coherent Approach to Managing Common Pool Resources

These concerns about the changing scope of the public trust doctrine and its use by courts to invalidate State actions point to broader debates about the role of common property doctrines in U.S. property law. Carol Rose addressed this tension most succinctly when she observed that the public trust doctrine and other common property regimes are radical because of “their seeming defiance of classic economic thinking and the common law doctrines so markedly mirroring that theory.”²¹⁷ She points to a few of the most telling tensions—the prioritization of public access over a right to exclude,²¹⁸ and the wholesale withdrawal of some objects from the possibility of private appropriation.²¹⁹ These moves are not easily reconciled by Demsetz’s economic theory for the emergence of property rights (i.e., a process of privatizing the commons made possible when the benefits of internalizing the externalities of using land exceed the costs).²²⁰

But Rose and others show how the public trust and related doctrines are, in fact, consistent with the greater corpus of property law. Henry Smith, for example, has identified two dimensions of property rights: the “compositional” (i.e., the physical resource that is the object of the rights) and the “organizational” (i.e., the range of activities allowed with respect to the resource).²²¹ Conceived along a spectrum, Smith identifies two methods for communicating this information—(1) straightforward rules of exclusion and (2) more informationally-intensive rules of governance.²²² Seen in this light, one defense of the public trust doctrine is that it represents a form of property that just relies more on governance rules than exclusion.²²³

Even this account, however, does little to defend the changing res as a feature of the public trust doctrine. Here, we can look to work arguing that the nature (and indeed changing nature) of property rights can be profitably explained through the social values they produce and reproduce. Rose again provides a useful starting point. She finds that “service to commerce was a central factor in defining as ‘public’ such properties as roads and waterways” and argues that public use of such properties produced significant (even “akin to infinite”) returns to scale.²²⁴ Expanding the categories of resources subject to a common access property rule, therefore, can be consistent with a benefit-maximizing approach to property law. Indeed, Rose notes how private ownership of resources traditionally considered “inherently public,” such as roadways, create holdout and monopoly if privatization is allowed to run free.²²⁵

But Rose also notes how these common access regimes are consistent with an understanding of property law that goes beyond pure economics. She notes, for example, how eighteenth and nineteenth-century scholars viewed the commercial functions enabled by inherently public property as also serving important socializing functions.²²⁶ Taking this as a starting point, Rose argues that substantive visions for what constitutes a socializing function can, and almost certainly will, change. Therefore, it would be quite natural for the nature of “inherently public property” to also change with time.²²⁷ As Rose notes, this account fits quite well with the changing res of the public trust doctrine, particularly if recreational and environmental interests are understood as serving, in modern times, a socializing function similar to that once seen as inherent to commerce.²²⁸

Rose’s socializing account is consistent with the work of Joseph Singer, who argues that property forms (which, particularly in the domain of real property, are notably few)²²⁹ embody “a set of norms and values that defines the legitimate social relationships that can be recognized in a free and democratic society.”²³⁰ As Singer goes on to argue, “the structure, shape, and definition of . . . bundled rights in the property law system must reflect our considered judgments about the legitimate contours of the social order.”²³¹ This work in turn builds on that of Alexander, who has argued that multiple-owner property (which he calls “governance property”²³²) develops virtues (like community, cooperation, trust, and honesty), which in turn promote human flourishing.²³³

The fact, then, that the public trust res has shifted over time is perfectly consistent with a change in the social values that underpin our system of property rights. Of course, questions of institutional competence remain. But in the international system, this challenge to U.S. courts’ roles in shaping the scope of the public trust doctrine just is not germane. There is no world court of common law jurisdiction capable of unilaterally deciding the scope of what comprehends the common heritage doctrine.

There is much that unites the public trust and common heritage doctrines: common roots in Roman property law, doctrinal innovation in the middle of the twentieth century, and heated disagreements about their scope and wisdom as legal doctrines. By understanding how the public trust doctrine coheres with a broader category of inherently public property and an understanding of property rules as conduits for reinforcing social values, we can begin to build a renewed framework for the common heritage doctrine.

E. Realpolitik and a Public Trust Approach to the Common Heritage Doctrine

Finally, I am not advocating for the international community to adopt a substantive vision of U.S. property law. As will be clear by the end of Part III, a public trust approach to the common heritage doctrine provides a framework for devising property rules by focusing on the values that states wish to foster. It does not itself determine what those values should be. We can see the benefits of this approach in the degree to which non–U.S. jurisdictions have adapted Sax’s vision of the public trust doctrine.²³⁴ These effects have been most direct, and most striking, in India.

The Supreme Court of India, in MC Mehta v. Kamal Nath, struck down a ninety-nine year government lease of protected forest to build a motel and declared as incompatible with the public trust a proposal to redirect an adjoining river to prevent the proposed resort from flooding.²³⁵ In its decision, the Court cited Illinois Central, California’s Mono Lake decision, and Sax’s article to establish the common and natural law roots of the public trust doctrine.²³⁶ Indian courts have reaffirmed and, in interesting ways, expanded the public trust doctrine in the years since this decision.²³⁷ For example, they have extended the public trust to include “ensuring a fair distribution of the revenues produced from publicly owned resources, such as natural gas leases,” and a distribution that “includes concerns for intergenerational equity.”²³⁸ The similarities with Pardo’s redistributive vision for the common heritage doctrine are inescapable. But more to the point, we can see how the public trust doctrine suggests a way of thinking about and a process for protecting the public values we want to achieve by preserving certain resources for public use. This approach need not reflect the particular values of any given U.S. State.

III. A PUBLIC TRUST PERSPECTIVE FOR THE COMMON HERITAGE OF HUMANKIND

I propose a four-part framework for this public trust approach to the common heritage of humankind, informed by the structure of common law trusts.²³⁹ The four lines of inquiry consider: (1) the property held in trust (i.e., the res), (2) the beneficiary of the trust, (3) the trustee and the means by which the trustee may treat the trust, and (4) mechanisms by which the beneficiary may vindicate their interests against the trustee.

A. The Res

The rapid pace with which the res considered subject to the public trust has changed suggests that an approach to the common heritage of humankind that takes as a starting point specific resources largely misses the point. Instead, as Rose and others have demonstrated, we should focus on the theory of the res—that is, the social objectives we are trying to achieve by incorporating specific resources into a legal regime of common access. Put another way, the resource matters less than the reason why we think it should be incorporated into a common access regime, and the purposes for which we think such a regime should exist.

We have already seen how these higher-level concerns dominate debates about the common heritage doctrine. Take, for example, opposition to the Moon Agreement. One of the central concerns of the United States and other space powers was how exactly the doctrine would be meted out under the contradictory principles provided in the Moon Agreement.²⁴⁰ The same can be seen in the law of the sea. Industrialized states only acceded to UNCLOS after extracting concessions in the 1994 Implementation Agreement to concentrate power in the International Seabed Authority’s Council through an allocation of seats that ensured their ability to block regulations that implemented a redistributive vision for the common heritage doctrine.²⁴¹ Securing a consensus at this theoretical level can be incredibly difficult in large-scale international negotiations. But, as a matter of negotiation strategy, sticking with such difficult issues can itself be profitable.²⁴² And as I will show in Part IV, in particular negotiation contexts there can be practical ways to refine the scope of this debate to increase the likelihood of success.

There are four theories of the res that we can most immediately discern from our discussion thus far: (1) an access theory; (2) a socializing theory; (3) an ecological theory; and (4) an intergenerational equity theory. I will address each in turn. Of course, these categories represent ideal types—there certainly may be profitable areas of overlap between them.

1. Access Theory

This theory of the res would incorporate those resources for which we expect the economic benefits of general use to be greater than those gained through individual appropriation.

This is the approach most evident in the underlying Roman sources and early U.S. case law. Here, property is characterized as a common heritage to prevent any one entity from monopolizing access to it. So, as was provided in Morris v. United States, land under tide waters is a “public trust for the benefit of the whole community, to be freely used by all for navigation and fishery, and not as private property, to be parceled out and sold for . . . individual emolument.”²⁴³ Another example of this approach is evident in the Supreme Court’s decision in Shively v. Bowlby, where it found that land under tide waters “are of great value to the public for the purposes of commerce, navigation and fishery. Their improvement by individuals, when permitted, is incidental or subordinate to the public use and right.”²⁴⁴

A similar policy sentiment bears forth in the Roman sources. For example, Ulpian finds that a claim may be brought against the owner of a seaside villa where the villa’s owner, in any way, obstructs the public’s right to fish in the seas.²⁴⁵ This is consistent with Rose’s observation that the common law designated properties as “public” where their use by all-comers yields commercial benefits that could not accrue if their use were restricted to a single owner.²⁴⁶

2. Socializing Theory

We might alternatively call this the Rose theory of the res. Here, we characterize as common those properties the use of which advances interactive, social virtues.²⁴⁷ So, for example, Rose identifies free speech, alongside commerce, “as a socializing practice for our society—a practice with infinite returns to scale, whose necessary locations might be subject to a public trust.”²⁴⁸ She likewise argues that the same is true of recreation.²⁴⁹ So, under this theory, resources considered public (or, in our lexicon, common) might be utility poles on which political fliers are posted,²⁵⁰ or beaches on which the public may learn to get along by coming together for recreation.²⁵¹

As Rose admits, notions of what constitutes a socializing activity are nearly infinitely contestable.²⁵² And particularly in an international and multi-cultural setting, developing a consensus about beneficial social interaction may be even more difficult. Yet this kind of inquiry is not unprecedented in international lawmaking. Take, for example, the Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property.²⁵³ This treaty, ratified by 143 states, identifies eleven categories of cultural property for protection through various export and import controls.²⁵⁴ Notable among the policy purposes for the Convention is the belief that “the interchange of cultural property among nations for scientific, cultural and educational purposes increases the knowledge of the civilization of Man, enriches the cultural life of all peoples and inspires mutual respect and appreciation among nations.”²⁵⁵

3. Ecological Theory

An ecological approach to the common heritage doctrine would prioritize protection of the environment to identify resources that should be incorporated into the res. We see this approach most clearly in the work of Sax, who, as we have discussed, focused in a rather utilitarian fashion on the public trust doctrine because of its promise as a procedural means for environmental protection.²⁵⁶ A similar animating principle emerges from scholarship²⁵⁷ and litigation urging courts to identify the atmosphere as another subject of the public trust.²⁵⁸ And so, for example, youth plaintiffs have urged courts to consider the federal government’s failure to curb air pollution as a violation of a public trust that inheres in the atmosphere.²⁵⁹

In some ways, the vociferous disagreement at the International Seabed Authority concerning regulations for extractive mining is a conflict between two theories of the res—the access theory and the ecological theory.²⁶⁰ Both, in a way, have a hook in UNCLOS. Article 140 provides that the financial proceeds of seabed mining will be provided to developing and other disadvantaged states,²⁶¹ which assumes commercialization of seabed resources. Article 145, on the other hand, provides that measures will be taken to “ensure effective protection for the marine environment from harmful effects which may arise from such activities.”²⁶² Yet even these measures presuppose the existence of extractive activities, which may account for the fact that mining operations are set to begin in 2024 notwithstanding significant environmental concern.

4. Intergenerational Equity Theory

The new international economic order movement represents one example of how to conceive of common heritage res in a way that prioritizes equity concerns. We can see this in the words of Ambassador Pardo, who argued that the deep seabed should be characterized as a common heritage primarily as a means for redressing disparities between newly decolonized states and developed economies.²⁶³ And it remains alive in the work of scholars like Egede, who identifies the redistributive potential of the Enterprise’s as a necessary component of the common heritage doctrine in the law of the sea.²⁶⁴ As noted previously, this is also the theory of the res that likely faces the most resistance from developed economies, and which was significantly undermined by the 1994 Implementing Agreement.²⁶⁵

B. The Beneficiary Class

There are at least two primary parts to any inquiry into the common heritage doctrine’s beneficiary population. First is whether the population should be defined as that of a specific political community or humanity writ large. The second is whether the population should be defined as only those persons currently alive or also as including future generations. I will address each in turn.

We have already seen how debate over the first dimension can be traced all the way to the Roman law antecedents of the public trust and common heritage doctrines.²⁶⁶ As Ruhl and McGinn posited, as a practical matter, it may be impossible to enforce a res communis regime without acknowledging some role for the government (i.e., in a manner quite similar to the government’s responsibilities regarding res publicae).²⁶⁷ This approach is implicit in nearly every public trust doctrine case. For example, the Supreme Court in McCready v. Virginia found that “the States own the tide-waters themselves, and the fish in them, so far as they are capable of ownership while running. For this purpose the State represents its people, and the ownership is that of the people in their united sovereignty.”²⁶⁸ Justice Washington made this connection equally clear in what appears to be the earliest public trust case to have reached the bench of a Supreme Court justice.²⁶⁹

Contemporary public trust cases have been most direct in identifying that the beneficiary class should be understood to include future generations. For example, the Supreme Court of India in MC Mehta was clear in identifying the public trust doctrine as one that protected natural heritage in the interest of future generations.²⁷⁰ The Supreme Court of Hawaii has been similarly forthright in its attention to future generations, holding that “the public trust relating to water resources [is] the authority and duty ‘to maintain the purity and flow of our waters for future generations and to assure that the waters of our land are put to reasonable and beneficial uses.’ ”²⁷¹ This does not mean, however, that any conception of the common heritage must include consideration of future generations. There appears to be no such stipulation in any of the federal public trust cases in the years before Illinois Central, for example. And the Roman sources are equally silent on the question of future interests.

C. The Trustee and Means of Protection

1. Trustee

There are three distinct considerations to keep in mind here. First, there is deciding whether the beneficiaries should be identified as members of a political community or humans as an aggregated whole. Second, there is identifying a trustee. Finally, there is deciding whether an institutional actor outside the beneficiary class is empowered to ensure that the trustee is acting in the beneficiary class’s interests. In the domestic public trust cases, this has largely centered around debates over the proper role of the courts in reviewing legislative action. We have seen a wide range of models. On one end are some of the earliest cases from Maryland, wherein the courts entirely deferred to the legislature’s decision to alienate trust property.²⁷² On the other end of the spectrum is the California Supreme Court’s assertion of continuous, coequal jurisdiction to impose something akin to a hard-look review of agency action.²⁷³ As we have discussed, it was this potential for a strong judicial role that most attracted Sax to the public trust doctrine as a means for protecting the interests of a silent, disperse majority.²⁷⁴ These are, of course, ideal types, as the Supreme Court’s inconsistent approach to deferring to legislative actions in the wake of Illinois Central makes abundantly clear.²⁷⁵

2. Means of Protection

One could imagine an almost infinitely long list of the ways by which a trustee might protect the res in the interest of the beneficiary. These means would be in significant degree contingent on answers to the questions posited above. So, for example, the theory of active stewardship required by the California Supreme Court can be seen as a necessary product of an ecological theory of the res where the beneficiary class includes future generations. Looking across the case law we have surveyed, three broad categories emerge. Again, these exist along a spectrum from least to most permissive and should only be seen as ideal types.

First, there is the absolute prohibition on alienation or use. This has the least precedent in American public trust case law, as courts almost always recognize some ability for a legislature to divest of, or allow limited use of, trust resources.²⁷⁶ Expanding our notion of the public trust somewhat, this model would be akin to the protection afforded under the Endangered Species Act.²⁷⁷ A second, less robust, means of protection would be a requirement that the trustee be an active steward of the trust resource. The California Supreme Court adopted something analogous to this approach when it held that the public trust “imposes a duty of continuing supervision over the taking and use of [] appropriated water.”²⁷⁸ A third, and by far most common approach in U.S. case law, is to require that use or alienation of the res be consistent with trust principles. As noted previously, this too exists along a spectrum. In this way, the Supreme Court’s more skeptical approach in Illinois Central and the early approach of Maryland courts are all variations of this same model.²⁷⁹

D. Vindicating the Beneficiary’s Interests

Finally, a public trust framework for the common heritage of humankind considers the means by which the beneficiary class can vindicate its interests if the trustee fails in its duties. This is by far the most difficult to analogize across the domestic and international contexts. In U.S. case law, one of the signal virtues of the public trust doctrine, as told by its proponents, is the fact that it provides standing to sue the government for failure to protect trust resources.²⁸⁰ Yet there currently exists no international tribunal by which any citizen might vindicate rights under UNCLOS, for example. UNCLOS provides something of a proxy in the Seabed Disputes Chamber of the International Tribunal for the Law of the Sea.²⁸¹ Yet even here, the chamber’s jurisdiction is limited to disputes between states parties, entities created by UNCLOS concerning seabed mining, and private parties who have entered into mining contracts with the Authority.²⁸² This is, in actuality, quite a robust mechanism for enforcing the duties imposed by UNCLOS. On the other end of the spectrum would be the norm-based enforcement of climate change goals arrived at under the UN Framework Convention on Climate Change.²⁸³

There are a number of benefits to applying the public trust framework to the common heritage of humankind. First, and perhaps most importantly, it provides a more detailed lexicon for articulating what we mean when we debate the common heritage doctrine. Second, it recognizes that social values are at the core of debates about the common heritage of humankind, and it demonstrates the wide range of values that we might seek to advance. And third, it connects this higher-level debate about values to a more practical discussion of particular governance rules.

IV. CASE STUDY: OUTER SPACE MINING

It is particularly appropriate to assess how a public trust approach to the common heritage doctrine might help the international community develop rules for managing outer space mining. There are many existing proposals, often developed after the United States enacted domestic legislation concerning asteroid mining in 2015. Although promising, these proposals are largely a grab-bag of analogies to existing domestic and international legal regimes. Applying a public trust approach to the common heritage doctrine can help us build on these proposals in a way that is incremental and sensitive to geography and changing technology.

A. Existing Proposals

Member states of the UN Committee on the Peaceful Uses of Outer Space (“UNCOPUOS”) have addressed outer space resource extraction every year since 2015.²⁸⁴ Beginning in 2022, UNCOPUOS has embarked on a more rigorous, five-year process for developing international rules for outer space mining. In significant part, this five-year endeavor was born of the plethora of states enacting domestic laws recognizing the property rights of private parties that extract abiotic resources from celestial objects. This list now includes the United States, Luxembourg, Japan, and the United Arab Emirates.²⁸⁵ A 2022 call for views uncovered a few areas of broad agreement. First, most states agreed to exclude discussion of access to orbits and radio frequencies from these debates, since both issues were already addressed in forums like the International Telecommunications Union.²⁸⁶ Many states likewise looked to develop a framework that would ensure predictability, safety, sustainability, and the peaceful uses of outer space.²⁸⁷

The United States has taken the lead in cultivating a group of like-minded states in favor of outer space mining. Executive Order 13914 propelled this initiative by directing that NASA foster international support for outer space resource extraction.²⁸⁸ NASA has primarily executed on this task through a series of identical bilateral agreements with other states called the Artemis Accords—a set of principles established to encourage cooperation in future lunar activities.²⁸⁹ In relevant part for our purposes, the Artemis Accords provide that “the extraction of space resources does not inherently constitute national appropriation under article II of the Outer Space Treaty.”²⁹⁰

The most-cited proposals for managing such resource extraction are provided by the so-called Hague “Building Blocks.” Developed by a group of leading scholars from 2016 through 2020,²⁹¹ these Building Blocks address a wide range of outer space activities. In pertinent part, they recommend establishing a registry-based system for resource extraction “priority rights.”²⁹² Upon registering the geographic scope and period of time for any given prospecting operation, a safety zone around the activity would also be established commensurate with the type of activity that is proposed.²⁹³ The Hague Building Blocks adopt many of the uncontested elements of the common heritage doctrine—resource extraction would be carried out only for peaceful purposes “for the benefit and in the interests of all countries and humankind irrespective of their degree of economic and scientific development.”²⁹⁴ Although the precise contours of this benefit are left largely undefined, the Building Blocks do provide that states should share benefits by promoting “participation in space resource activities by all countries, in particular developing countries.”²⁹⁵ Such promotion might include, for example, assisting in developing space science and technological capacity, cooperation on training and education, providing open access to scientific information, incentivizing joint ventures, exchanging expertise and technology on a mutually agreeable basis, or establishing an international development fund with the proceeds of mining activities. The Building Blocks also advocate ensuring that rights over extracted resources “can lawfully be acquired through domestic legislation, bilateral agreements and/or multilateral agreements.”²⁹⁶

This approach is typical of a wider range of commentary urging states to adopt an outer space mining regime modeled off the International Telecommunication Union’s first-in-time, first-in-right registration system.²⁹⁷ More libertarian versions of this proposal call for the international community to do nothing—relying instead on a rule of first possession and ad hoc recognition of an entity’s on-the-ground mining operations as they develop.²⁹⁸

Another set of proposals suggests establishing some common baseline of resource entitlements. In this vein, some have recommended partitioning the moon geographically between states and allowing each to develop its own system for prioritizing extraction activities within their respective zones.²⁹⁹ A similar variant would adopt the concept of the exclusive economic zone from the law of the sea to achieve a similar end, while also being in less apparent tension with the Outer Space Treaty’s prohibition on sovereign claims.³⁰⁰ Yet others would establish a system of tradable credits, where each state received some baseline allocation of resource rights that could be sold to other states.³⁰¹

A final group of proposals seek to adapt various doctrines of domestic property law. In this way, some have advocated entrusting an international body with all extraterrestrial property rights and granting to private entities a defeasible fee interest for mining operations.³⁰² Similarly, others propose adopting a condominium model, with each state being granted fee simple to particular territories that are subject to a more general management scheme.³⁰³

This is only a flavor of the wide range of schemes proposed by states, scholars, and activists. All have their benefits and drawbacks, depending on your normative views. But, with the possible exception of the Hague Building Blocks, none provide a holistic framework for thinking about outer space mining.

B. The Public Trust Approach

A public trust approach to the common heritage doctrine does not prescribe a particular vision for outer space mining. Instead, it provides a more structured framework for thinking about the values that we seek to advance in using resources on celestial objects. By employing the public trust framework to outer space mining, two key distinctions emerge—the locations on which mining operations will occur and their probable timelines.

1. Defining the Res

To understand why these distinctions matter, we can begin by considering how states might apply a theory of the res to outer space mining. Take, for example, Rose’s socializing theory. This, again, is the idea that we should treat as common those resources the use of which produces some interactive, social virtues.³⁰⁴ Let us imagine that mining operations were to start tomorrow—there are a few categories of objects that, under this theory, should be characterized as a common heritage. The first might be objects of cultural heritage—the first Apollo landing site, for example, or Neil Armstrong and Buzz Aldrin’s footsteps at Tranquility Base. Even with a relatively minimal presence on the moon, preserving such sites would be a reminder of humanity’s shared journey of exploration and our years of shared, peaceful cooperation in civilian space programs. This is by no means a novel idea—the U.S. government has already expressed an interest in preserving these historical artifacts.³⁰⁵ Another might be locations and communication equipment, whether on the moon or in the moon’s orbit, necessary to relay communications from the far side of the moon to Earth.³⁰⁶ These resources are fundamental to communication in the same way that Rose posited utility poles are a cornerstone of political speech.³⁰⁷

These examples just do not apply to asteroid mining. There are no such cultural heritage sites, and if the asteroid is small enough, they are unlikely to ever exist. Asteroids are also unlikely to be so large as to frustrate ready communication with Earth. All of which is to say that location matters. And an approach to outer space mining that is sensitive to these differences in location may more readily lead to consensus on practical rules of the road.

Returning to our thought experiment about mining on the moon, we could imagine significantly different socializing interests at different time horizons. Let us again take the socializing theory as a heuristic. Aside from the cultural objects and communications sites noted above, if mining were to start tomorrow, there are relatively few other resources the use of which might lead to any kind of interaction—there are likely to just be too few people on the moon. But if we cast our minds some decades down the line, when state and private industry plans to have permanent lunar settlements might be realized, the situation is quite different. Like Rose’s public roadways,³⁰⁸ we could imagine there being commonly used routes connecting settlements the private appropriation of which would frustrate socializing settlements to each other. We could also imagine use of the moon’s limited water resources as another locus of important socialization. NASA has found there to be 1/100th of the amount of water in the lunar soil on the sunlit side of the moon as exists in the Sahara.³⁰⁹ To the extent that permanent human settlements need to rely on these water sources, their private use without some general use scheme could well lead to resource conflicts—certainly not a socializing use of water resources. For those who adopt a socializing theory of the res, therefore, it would be useful to adopt now a precautionary approach to using these resources which, in a foreseeable future, are important to incorporate into the commons. Such a precautionary approach might, for example, limit present use of water resources only to what is necessary to sustain human life for research stations, and not stations established just for mining activities.

Once again, these future concerns are less likely to exist on a relatively small asteroid where there is no practical ability to have a human settlement, even in a future where there are more humans who live or operate in outer space. In this case, there may be fewer practical reasons to adopt a precautionary approach to any water resources that might exist on the asteroid—paving the way to more extensive private use.

Finally, choosing between different theories of the res is largely a normative decision. But as this discussion shows, there is a geographic component that is at play. Over any time horizon, the socializing interests implicated in mining an asteroid are significantly fewer than might pertain on the moon. The same would not be true if we adopt an access theory of the res, which prioritizes opening access to outer space resources. While this does not help us choose between theories, it does help us identify those locations on which there is likely to be less disagreement among states. If we imagine a bilateral negotiation between one state that supports an access theory and another that adopts a socializing theory, they should begin their negotiations by developing a legal regime for mining asteroids. There are likely to be fewer areas of disagreement simply because the possible uses of asteroids, now or in the future, are more limited than the possible uses of different parts of the moon.

Distinctions based on location and timeframe are important to considering each of the remaining lines of inquiry for a public trust approach to outer space mining. In the remaining sections, I will briefly demonstrate why.

2. Defining the Beneficiary

As a general matter we can imagine three possible beneficiary classes. The first are those who live near the mining operation (this necessarily requires imagining a future with a permanent human presence, for example, on the moon). Second are those who live on Earth (the only class we could imagine today, for example). And the third would be to combine these two groups. An approach to the common heritage that benefits only those who live near the mining operation would be fundamentally different from one that also considers the interests of those on Earth. For example, if we adopt an ecological theory of the res, there might be significant environmental effects to mining that are purely local. So, operations that eliminate access to lunar groundwater or destroy a particularly attractive landscape simply wouldn’t matter to an earth-bound beneficiary class. Instead, maximizing the benefits that accrue to the mining (so that the proceeds could be redistributed, for example) would be far more important to this class of beneficiaries.

The question of determining the beneficiary class is largely theoretical for the time being. Presently, it is difficult to imagine any beneficiary class other than all of humanity, politically represented by states as the primary subjects of international law. But this thought experiment does suggest that there will be a difficult future task in determining the degree of preference, if any, that these beneficiary groups should enjoy from extracting resources. Difficult, but not unprecedented. Fundamentally, it is no different than the task faced by the Supreme Court in its early public trust cases: Can we impose regulations on oyster fishing in a manner that benefits the citizens of one state over those of another?³¹⁰ And for those who believe in the virtue of including non-Earth-bound beneficiaries into the common heritage of certain extraterrestrial resources, these distinctions would again counsel in favor of adopting a precautionary approach to mining now.

Together with the theory of the res, defining the beneficiary class will also raise questions about what benefits should accrue to the beneficiaries. Much of the debate about sharing technology, information, and financial proceeds from outer space mining has focused on this question. Fundamentally, like all these inquiries, it is normative and defies any necessary legal answer. Taking this public trust approach as a starting point, those advocating for preferences that would accrue to less developed countries should emphasize theories of the res that prioritize an intergenerational, equity-based approach and an understanding of the beneficiary class that extends beyond the political community of the state that engages in mining activities.

3. Trustee and the Means of Protection

As was the case in negotiations concerning the law of the sea, much of the current debate in outer space law concerns whether, and how, to create an international organization to manage mining operations. A public trust approach to the common heritage doctrine, however, suggests that this debate necessarily depends on decisions made about the theory of the res and the beneficiary class. States would do well to think critically about the history of the International Seabed Authority—the mere existence of a detailed international bureaucracy has guaranteed neither redistributive benefits for less-developed countries nor guaranteed swift access to the ocean floor.

We have already canvassed many of the institutional arrangements that states can develop to constitute a trustee and the associated means by which the trust is protected. Again, differences in location and timeframe are important. For locations where future human habitation is possible, some standing adjudicatory body may one day be necessary. But in the interim, proposals for a registry operated by some entity like the International Telecommunications Union³¹¹ appear to be sufficient. The members of such a body can use the forum to develop regulations that ensure non-interference, prioritize resource rights, and develop safety standards. So long as states can agree on the theory of the res before such a model is adopted, the risks of significant future changes in the scope of the common heritage doctrine would also be meaningfully minimized.

To the extent that states are interested in adopting a precautionary approach to mining for any of the reasons discussed above, a few options exist. One would be to limit prospecting for resources indefinitely or for some period of years. These limits could be tailored to specific locations (for example, applying to particular areas of the moon or the moon writ large), types of resources (for example, water), or the purposes for which the resources are used (for example, to sustain life). States could determine these limits in a variety of consultative fora, whether that be UNCOPUOS or some smaller body of concerned states, much like the Arctic Council.

4. Vindicating the Beneficiary’s Interests

The design choices made in Section IV.B.3 significantly determine the ways in which a beneficiary class might vindicate their rights. In the immediate future, there are two choices for how beneficiaries might vindicate their rights.³¹²

At one end, states might create an international tribunal along the lines of the Seabed Disputes Chamber of the International Tribunal of the Law of the Sea. Much like under UNCLOS, such a tribunal could have jurisdiction over states parties and private entities with mining operations and be empowered to enforce agreed-upon regulations. As a practical matter, I am pessimistic about the likelihood of any major spacefaring state acceding to this kind of jurisdiction. There has been enough action to unilaterally assert mining rights, by the United States and Luxembourg particularly, that establishing such a tribunal would likely be seen as a concession with little apparent benefit.

It seems more likely that states would continue using informal conciliation and negotiation to enforce compliance with mining regulations. This would operate in much the same way as states “enforce” the nationally determined emissions targets agreed upon under the UN Framework Convention on Climate Change.³¹³ Such an approach necessarily entails significant potential for backsliding. Some of this risk, however, could be mitigated if states are able to agree on some of the more fundamental questions discussed earlier in this section, and particularly on the theory of the res pertinent to a particular location. By more narrowly defining the problem set and establishing more detailed consensus, there may be less of an incentive for states to backslide on their commitments.

V. CONCLUSION

The common heritage of humankind contains great promise as a framework for understanding and managing resource challenges in areas beyond national jurisdiction. Its potential, however, has been stymied by its close association with the politics and economic disputes of the Cold War. Taking lessons from the development of the public trust doctrine in domestic U.S. law, the common heritage can be liberated from these political battles and applied to a wide range of contemporary problems. Future work, for example, might use this four-part framework to develop a more detailed mechanism to protect and use marine genetic resources or protect marine biodiversity.³¹⁴ Contemporary international politics has, in many ways, returned to a pattern of Cold War alliances and territorial conflict. Our approach to the international law for managing resources in areas beyond national jurisdiction can remain practical and resist a similar turn to the past.

97 S. Cal. L. Rev. 1469

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Christopher Mirasola*

* Assistant Professor, University of Houston Law Center. I am particularly grateful to Molly Brady, who pointed me in the direction of the public trust doctrine in the early stages of this project. I am also very grateful for helpful feedback from William Alford, Haley Anderson, Stephen Cody, Asaf Lubin, Thomas McGinn, Brian Richardson, Melissa Stewart, Andrea Olson, Carol Rose, and Paul Stephan. All errors are, of course, my own.

Meme Corporate Governance

October 2024October 2024Dhruv Aggarwal,* Albert H. Choi† & Yoon-Ho Alex Lee‡

Can retail investors revolutionize corporate governance and make public companies more responsive to social concerns? Beginning in 2021, there was a dramatic influx of retail investors into the shareholder base of “meme” stock companies such as GameStop, AMC, and Bed Bath & Beyond. Observing the unprecedented, coordinated trading among retail investors, scholars and practitioners predicted that the influx of retail investors would reduce the power of large institutional investors and democratize corporate governance. These predictions were driven by three factors: generational, with assumptions that millennial and Gen Z investors would challenge corporate management; societal, reflecting growing discontent with slow progress on issues such as sustainability and boardroom diversity; and technological, with the advent of easily accessible and user-friendly mobile apps allowing investors to directly intervene in corporate governance. While plausible, these predictions have so far not been tested. This Article empirically analyzes the impact of retail investors on corporate governance, particularly at meme stock companies. We provide new quantitative evidence regarding the origins of meme investing and conclude that—despite their coordinated trading behavior in the market—meme investors have not democratized corporate governance or advanced social issues. The Article presents three principal findings. First, we show how the “meme stock” frenzy was affected by the abolition of trading commissions by major brokerages in 2019. Meme stock companies experienced positive abnormal stock returns when commission-free trading was widely introduced and saw elevated trading volumes afterward. Second, we find that despite the promise of a more active retail shareholder base, meme stock companies experienced a significant decrease in shareholder voting. Shareholder proposals have also been very limited, with most meme stock companies seeing no proposals after the rapid rise in retail ownership. Third, we do not find any improvement in meme stock companies’ corporate governance, financial performance, and social responsibility, as represented by director independence, board gender diversity, ESG scores, and capital and R&D expenditures. Collectively, our findings suggest that the influx of retail shareholders has not translated into more “democratic” governance regimes or encouraged shareholder participation in corporate governance at companies most affected by the meme investor storm.

INTRODUCTION

Buoyed by pandemic checks and the advent of commission-free mobile apps such as Robinhood, retail investors took Wall Street by storm in early 2021.¹ Coordinating through social media sites such as Reddit and using catchy “memes,”² retail investors engaged in an active “buy” campaign to dramatically push up the GameStop stock price from $4 a share to a stratospheric level of over $485 per share. GameStop, a gaming merchandise retailer, had been losing money and seemed headed toward bankruptcy.³ A number of hedge funds had taken large short positions against the stock, betting that the price would drop even further.⁴ Meme investors seem to have been motivated to “punish” the hedge funds by driving up the stock price and creating a “short squeeze” against them.⁵ The end result was a severe loss and a subsequent retreat for the hedge funds.⁶ Taking advantage of the elevated stock price, GameStop raised large amounts of capital through stock sales,⁷ alleviating its dire liquidity condition. Retail shareholders, who have long played second-fiddle to institutional asset managers and pension funds, thus seemed to have vanquished Wall Street hedge funds and resurrected an ailing company destined for bankruptcy.

Over the ensuing months, it became clear that the GameStop saga was but one instance of more widespread meme stock surges. A number of other companies (hereinafter “meme stock companies” or “meme companies”) would experience surges in their stock prices, which, like GameStop, could not be explained by their financial fundamentals. Investing has become a social phenomenon. Furthermore, meme investing has remained a persistent phenomenon: long after the GameStop saga, meme investors continue to target regional bank stocks,⁸ special purpose acquisition companies (“SPACs”),⁹ and even firms that have filed for bankruptcy.¹⁰ What this persistence implies is that GameStop’s meme surge was not a one-time event: meme investing and meme surges are here to stay. Furthermore, the meme surges tell us a broader and more generalizable story about the behavior of retail investors and the impact of the change in shareholder base. The potentially transformative effect of retail investors—driven by demographic, societal, and technological factors—has emerged as one of the central debates in corporate finance and corporate governance.

These experiences have motivated scholars, practitioners, and policymakers to ask several important questions. What impact did the influx of retail shareholders have on meme stock companies? More specifically, how did the new retail shareholders affect their governance and performance? Do the meme surges signify broader and more general implications for corporate and financial law and policy?

This Article’s key contribution is to focus on meme stock companies—the firms where retail investors are most likely to have become more powerful—and empirically test how corporate governance and performance has been affected by the dramatic influx of retail investors in their shareholder base. We start by analyzing the background of meme trading. The existing scholarship has almost exclusively associated meme stocks with the surge in social media interest (such as Reddit forums) in these companies starting in 2021.¹¹ While social media surely played an important role in popularizing these stocks, we trace the origins of meme trading further back, to the pre-pandemic era. Using an event study methodology, we find that meme stocks exhibited abnormal returns (and an abnormal increase in trading volume) in October 2019, when major brokerages abolished commissions for trading.¹² This suggests that meme stock companies were well positioned to benefit from the subsequent surge in retail investor interest: zero-commission trading laid the groundwork for the subsequent surge. The emergence and the significance of zero-commission trading for the meme stock phenomenon implies more fundamental changes that can happen at other public companies and across the financial markets.

After documenting the impact of zero-commission trading on meme stocks, we proceed to examine the consequences of meme trading for corporate governance and performance at meme stock companies. Specifically, we ask: Did the influx of retail investors create a more engaged shareholder base at meme stock companies and change corporate governance or environmental, social, and governance (“ESG”) activity at these companies? To answer these questions, we begin with corporate law’s paradigmatic framework for shareholder influence in public corporations: voting and shareholder proposals.¹³ Somewhat surprisingly, we find that non-voting—that is, the share of votes that were not cast for or against, or marked as abstentions—significantly increased in the year of the meme surge for meme stock companies, as compared with other, non-meme stock companies.¹⁴ Even more surprisingly, we find that the fraction of non-votes began to increase in 2019 and continued to increase in 2022, long before and after the meme surge of 2021. By late 2021 and early 2022 the retail investors who remain loyal to the company would presumably care more about the company’s (long-term) performance and governance.¹⁵ The fact that the level of shareholder engagement seems to be getting worse in 2019 and 2022 indicates that the increase in non-vote shares is not driven just by short-term speculators.

Turning to shareholder proposals, we find no evidence that shareholders at meme stock companies are more likely to participate in governance activities by submitting shareholder proposals, either before or after the meme surge.¹⁶ Between 2015 and 2022, only one meme stock company—Bed Bath & Beyond—had any shareholder proposals included in the company’s definitive proxy statements at all (three proposals, all in 2016), but these proposals predate the introduction of zero-commission trading and the influx of retail investors. Within the sample companies, there was also no record of any shareholder proposal being excluded via the Securities and Exchange Commission’s (“SEC”) no-action letter process during the sample period—apart from GameStop, which successfully excluded three shareholder proposals submitted in 2022. The evidence is consistent with retail investors brought in by the meme phenomenon being either uninterested in voting or making proposals, or unable to do so effectively.

Third, we examine whether retail investors might have had an indirect effect on meme stock companies. One of the most visible ways contemporary insurgent shareholders can affect company policy is to alter its orientation toward ESG goals. For example, in 2021, a small hedge fund (named Engine No. 1) waged a stunningly successful campaign to install three of its directors on the Exxon Mobil board to pressure the energy company to reduce its carbon footprint.¹⁷ Utilizing the data from the standard MSCI ESG Indexes, we find that meme stock companies actually deteriorated in terms of prosocial performance after the meme surge of 2021.¹⁸ We also look at whether meme stock companies performed better in terms of director independence or board gender diversity—other salient issues in corporate governance—and find no evidence that meme stock companies performed better (or worse) on these metrics after the surge of retail investor interest.¹⁹ Thus, meme retail investors do not seem to have made their companies’ policies more prosocial or improved the quality of corporate governance. If anything, the ESG result suggests that these firms’ orientation toward social causes may have worsened in recent years.

As a final measure of indirect impact, we look at how the affected companies changed their operations and performance after both the abolition of commissions in 2019 and the meme surge of early 2021. Meme stock companies’ average return on assets (“ROA”), an important metric for profitability, has substantially worsened over the period compared with non-meme stock companies. If meme investors were engaged and pushing management to make value-increasing investments, one might have expected a rise in expenditures on research and development (“R&D”) or capital investments. These expenses could potentially help meme stock companies adjust their business model and business operations so that they can improve their long-term profitability. We instead find that meme stock companies significantly reduced R&D expenses after the influx of retail investors.²⁰ This result suggests that retail shareholders may not be effective in (directly or indirectly) pressuring management to make productive investments. This contrasts with the findings that an increase in institutional investor ownership is correlated with more innovative activities at firms.²¹

Viewing these results collectively, we find that there is, so far, little evidence to suggest that corporate governance is being “democratized” in the way that the investing public has been. The organized movement among retail investors seems to be limited to their trading behavior and has not otherwise affected retail shareholders’ engagement with corporations in a noticeable way.²² If anything, the evidence points in the opposite direction. As a large block of retail investors remain passive, paradoxically, this can give institutional shareholders, who are active shareholders,²³ even more influence. We do not take issue with the three trends identified as potentially presaging a larger role for retail investors: generational shifts in investor attitudes, societal concerns over social and environmental issues, and technological changes making it easier for retail investors to participate in financial markets. Nevertheless, our empirical findings show that corporate governance has not significantly been democratized or changed yet, even at the companies most dramatically affected by the influx of retail shareholders.²⁴

The remainder of this Article is organized as follows: Part I surveys the demographic, societal, and technological changes that have led some commentators and scholars to express high hopes for the impact of meme and other retail investors on corporate governance. Part II explains our data sources and presents summary statistics. Part III examines the origins of meme trading and explains the importance of the 2019 abolition of commissions by online brokerages. Part IV shows that, despite the surge of retail investor interest in meme stock companies, shareholder nonvoting at meme stock companies increased in recent years, and retail investors failed to make much of an impact using the shareholder proposal process. Part V looks at potential indirect effects of shareholder engagements, such as firm ESG performance, board independence, gender diversity, R&D, and capital expenditures. We find that these companies have not become more prosocial recently, and meme firms’ ESG scores have decreased. We also find that these companies decreased both R&D as well as capital expenditures. In Part VI, we explore potential reasons as to why corporate governance has not been democratized notwithstanding the prevailing scholarly predictions. In doing so, we highlight important differences between the activities involved in meme investing versus those involved in meme shareholding. We then conclude and offer some possible directions for a future meme stock research agenda.

I. RETAIL INVESTORS, RETAIL SHAREHOLDERS, AND MEME TRADERS

When GameStop was experiencing a dramatic meme surge in January 2021, it was easy to dismiss the phenomenon as a transient anomaly that could be explained away by pandemic boredom and stimulus checks.²⁵ However, the pandemic has long ended and meme surges continue, albeit sporadically. Experts now believe meme trading is here to stay.²⁶ If meme trading has become a fact of life, it begs the question of what we should expect from retail investors participating in meme trading or trading more generally. Given that (coordinated) retail investing is here to stay, what impact will the shifting of the shareholder and investor base away from institutional shareholders and toward retail shareholders have on financial markets and corporations?

There are three principal drivers scholars and commentators have proposed as to how retail investors have become poised to transform financial markets and corporate governance. The first relates to perceived generational shifts in investor preferences. In this story, millennials and Gen Z entering the market as retail investors will seek to create a footprint, based on their social, cultural, and distributional preferences, on corporate policies.²⁷ Some analyses of these market participants have concluded that this generation cares deeply about issues beyond profit maximization, and are willing to forsake returns to pursue these interests through the corporation. For instance, Professors Michal Barzuza, Quinn Curtis, and David Webber argue that in order to attract investment from millennials, index funds should push more for various governance and social changes at companies—such as board diversity—which are issues that millennials care about.²⁸ Similarly, Professors Sergio Alberto Gramitto Ricci and Christina Sautter observe that millennials have a generationally defined and distinct set of values, and are more likely to prioritize ESG goals over profit.²⁹ In their telling, meme investors will seamlessly transform into engaged shareholders and usher in a new paradigm for corporate governance.³⁰

Secondly, meme investors could be highly motivated to affect corporate policies because of the societal time period in which the meme surge occurred. Some have argued that decades of profit-centric corporate governance have led to workers, residents of surrounding communities, and the environment all suffering from profit-centric corporate policies.³¹ The shareholders best positioned to change corporate policies—large asset managers such as BlackRock and Vanguard, who own more than a fifth of the average S&P 500 firm³²—are constrained in their ability to pressure management to change policies because any such change would hurt the interests of at least some of the hundreds of investment funds they operate.³³ In this vein, Professor Jill Fisch has argued that retail investors are a useful antidote to the concentration of market power in large institutional investors, and can help enlist ordinary citizens in the larger project of national economic development.³⁴ Free from the structural constraints faced by institutional investors, who owe a fiduciary duty to their clients and are likely to be obligated to pursue profit maximization,³⁵ retail shareholders are theoretically able to demand that firms adopt prosocial policies even at the expense of profit. Citizen involvement via retail investing could also have the advantage of tempering corporate power, with retail investors able to sway management through their ability to influence close votes.³⁶ An example of this from the meme surge came from meme investors who wanted to keep AMC theaters open despite the COVID-19 pandemic severely disrupting the firm’s business model.³⁷ By putting their money into the company (through additional capital raising) and keeping the movie theaters running, meme investors arguably offered a lifeline to the thousands of workers employed by the chain.

Finally, there is a technological element to the promise of meme and other retail investing. Since the mid-2010s, Robinhood has offered a game-like and easily accessible mobile app allowing retail investors to participate in the market. Financial economics literature has shown that retail investors overreact to market signals and allow overconfidence to distort portfolio allocation, reducing their financial returns.³⁸ Given this research, it is unsurprising that many retail investors decided to engage in stock-picking after gaining uninterrupted access to a flashy mobile investing app. Beyond investing apps, the GameStop saga and the meme stock frenzy of 2021 demonstrated the power of social media technology to coalesce dispersed individuals who can unite to bring about an impact and put checks on the forces of institutional players. Today, social media platforms such as Facebook, Reddit, and X (formerly known as Twitter), provide a space where individuals form communities, share information, and engage in collective action. These platforms have also made it easier for people to spread information quickly, allowing them to mobilize and respond to events in real time. From these perspectives, the meme surges of early 2021 could be seen as foreshadowing a future in which technology can further enable and empower dispersed individuals to overcome the cost of collective action and promote a collectively cobbled together agenda.

Collectively, the demographic, societal, and technological trends could be seen as ushering in an amplified role for retail investors. Consistent with this intuition, a study by Professors Alon Brav, Matthew Cain, and Jonathon Zytnick empirically assesses the collective voting heft of retail investors using a large proprietary sample of shareholder ownership and voting records.³⁹ They conclude that retail investor voting can have as much of an impact on corporate outcomes as the voting preferences of the three largest institutional investors.⁴⁰ This suggests that, to the extent meme stock surges can motivate greater retail shareholder participation, there is a realistic possibility of significant changes in corporate governance. For these reasons, more than three years after the GameStop saga, this Article seeks to empirically examine what changes, if any, have taken place in the governance of the companies subject to meme surges.

II. DATA AND SUMMARY STATISTICS

We use a variety of sources to collect information about both meme and non-meme stocks. Our first step is to identify which companies qualify as meme stock companies in the relevant period. We use Factiva⁴¹ searches and Internet queries with appropriate keywords (“meme,” “retail investors,” and “Reddit” in conjunction with “stock” and so on), modeling our approach on the nascent financial economics literature studying the meme trading phenomenon.⁴² We identify the following eight companies as meme stock companies: GameStop,⁴³ AMC Entertainment, Inc.,⁴⁴ Bed Bath & Beyond,⁴⁵ Blackberry,⁴⁶ Express, Inc.,⁴⁷ Koss,⁴⁸ Robinhood,⁴⁹ and Vinco.⁵⁰ For meme and non-meme stocks (i.e., other public companies), we collect an array of financial and non-financial information for the time period of 2015 to 2022. First, stock price information comes from the Center for Research in Stock Prices (“CRSP”). Firm financial data (size as proxied by assets in millions of dollars, performance (return on assets), debt ratio, cash ratio, closing stock price at the end of the fiscal year, and market value in millions), R&D, and capital expenditures are collected from Compustat. Finally, we get data on shareholder voting from Institutional Shareholder Services (“ISS”) (formerly known as Riskmetrics).

Table 1 presents the summary statistics for our dataset. Vote figures are organized at the shareholder proposal level and are matched to the firm-year level observations for financials from Compustat.⁵¹ Panel A displays the overall descriptive statistics (in millions for financial measures), while Panel B compares the relevant statistics between meme and non-meme companies, along with t-test results. The first statistic in Panel B, Percent Non-Votes, measures the extent of shareholder non-participation in direct governance. Following the accounting literature, we define shareholder non-participation as the percentage of outstanding shares that were not voted “for,” “against,” or “abstention” with respect to proposals at a meeting. Between 2015 and 2022, the average yearly non-participation rate for meme stocks was 28.75%. This is higher than the 25.04% average for non-meme firms and the difference is significant at the 1% level.

The next four statistics in Panel B, Return on Assets, Cash Ratio, Debt Ratio, and the natural logarithm of assets, present a picture of their respective financial status and performance. When we compare the respective returns on assets, we see that the mean return on assets for meme stocks over the entire period is –0.098, which is statistically significantly (at the 1% level) lower than –0.05 for the non-meme companies. In addition, while Cash Ratio and Ln(Assets) are not statistically significantly different, the meme companies have a statistically significantly higher debt ratio (at 32%) compared with non-meme companies (at 28%).

Table 1. Summary Statistics
Panel A
	N	Mean	SD
Percent Votes for Proposal	289422	70.53	19.16
Percent Votes Against Proposal	289422	4.34	8.6
Percent Non-Votes	289422	24.84	17.26
Ln(Assets)	282189	7.8	2.31
Cash Ratio	276587	0.12	0.18
Debt Ratio	224586	0.28	0.24
Return on Assets	282061	–0.04	0.25
R&D Expense	180296	294.56	2123.57
Capital Expenditures	228832	449.6	2117.09
Closing Price	288369	56.14	141.04
Market Value	259924	15314.18	74007.27

Panel B
	Non-Meme Firms (1)	Meme Firms (2)	t-statistic (1)–(2)
Percent Non-Votes	25.04	28.75	–3.94***
Return on Assets	–0.05	–0.098	3.17***
Cash Ratio	0.14	0.13	1.3
Debt Ratio	0.28	0.32	–3.05***
Ln(Assets)	7.56	7.37	1.54
Closing Price	56.18	28.54	3.72***
Market Value	15331.22	3023.8	3.15**
Note: Panel A presents information on the shareholder voting results and financial variables for the meme stocks identified in Part II, for the period of 2015–22. All financial variables are winsorized at the 1% level. Panel B presents t-tests for some of these variables between meme and non-meme stocks. The *, , and * denote significance at the 1%, 5%, and 10% levels.

Finally, the last two statistics in Panel B, Closing Price and Market Value (in millions), show some of the characteristics of the respective stock. Perhaps not surprisingly, meme companies, on average, had lower stock prices and lower market capitalization than non-meme companies: the average stock price of meme companies is about half of non-meme companies and the average market capitalization of meme companies (a little over $3 billion), one-fifth of that of non-meme companies. In sum, the descriptive statistics indicate that meme companies are on average less profitable (or unprofitable), more heavily leveraged, and have lower stock prices and market capitalizations, consistent with media reports.⁵²

III. THE TWIN SHOCKS TO MEME STOCKS

In the popular imagination, social media usage during the coronavirus pandemic has been singled out as the main driver of the emergence of meme stocks. The New York Times has characterized meme stock investments as being “propelled by a social media frenzy and a bit of boredom” during the pandemic.⁵³ The Wikipedia entry for “meme stock” defines it as “a stock that gains popularity among retail investors through social media.”⁵⁴ However, for our set of meme stocks, we identify an association with retail investors that (1) predates the pandemic and (2) does not relate to social media platforms, such as Reddit or X (formerly known as Twitter). More specifically, we look at the meme stocks’ response to the abolition of commissions by major brokerage platforms in late 2019.

On October 1, 2019, the major online brokerages Charles Schwab and TD Ameritrade eliminated commissions for all their customers. These platforms, which had dominated the online brokerage business, were responding to stiff competition from a new rival, Robinhood, which had heavily utilized the zero-commission trading model.⁵⁵ The advent of zero-commission trading has been widely acknowledged as a root cause of the explosion in retail investing activity. One of the leading explanations for why individuals do not participate in the stock market is that there is a fixed cost of investing that proves potentially insurmountable for the less wealthy.⁵⁶ It is unsurprising that, by reducing the entry cost of trading (i.e., commissions), the 2019 decision by major brokerages increased retail investor activity.⁵⁷

How did the abolition of trading commissions affect meme stocks? The relatively unexpected and sudden decision of the major brokerage platforms to introduce commission-free trading allows us to use the event study methodology to assess its impact. Given that this was prior to the meme stock surge of 2021, to the extent that the market was informationally “efficient,” the stock prices around October 1, 2019, would reasonably reflect the impact of the abolition of commissions on meme stocks.⁵⁸ First, we identify what the expected return for each stock would have been during the event period if the event had not occurred (that is, if the commissions had not been dropped). Using the standard Fama-French three-factor model,⁵⁹ this may be written as:

Here, Rit is the return on stock i on date t minus the risk free rate; Rmt is the market return on date t minus the risk free rate; RSMB is the return on a portfolio of small companies; and RHML is the book to market factor that is the portfolio of firms with a high book value to market value ratio. The abnormal return that can be traced to the event (that is, the associated stock price movement) is the actual return minus the expected return:

We calculate the abnormal returns on October 1, 2019, for all companies in the Compustat database, and regress them against an indicator for whether the company is one of our eight meme stocks. Table 2 presents the results from the event study. Column (1) shows that meme stocks had abnormal returns that were 2.25 percentage points higher than the market, and the coefficient on the indicator variable is highly statistically significant.⁶⁰ Column (2) reruns the regression in model (1) adding controls for firm financials (size as proxied by the natural logarithm of assets, cash ratio, debt ratio, and return on assets) and the results remain largely unchanged. One concern with our results could be that meme stocks are categorically different from non-meme companies. As a final robustness check, we control for the possibility that the financials of meme and non-meme companies may be different. Using the entropy-balancing technique invented in the social science literature,⁶¹ we balance the means of the covariates for meme and non-meme companies. As shown in column (3), our result for meme stocks remains robust to the entropy-balancing method.

Table 2. Event Study Results
	(1)	(2)	(3)
	Baseline	With Financials	Entropy Balanced
Meme Stock	2.252***	2.238***	2.230***
	(0.645)	(0.655)	(0.614)
Constant	–0.127***	–0.269	0.300
	(0.0269)	(0.246)	(0.768)
Observations	7,110	3,531	3,531
R-squared	0.001	0.010	0.208
Firm Financials	No	Yes	Yes
Note: This table presents results from an event study using the Fama-French three-factor model. The dependent variable in this linear regression model is the abnormal stock return on October 1, 2019. Columns (1) and (2) use ordinary least squares regression and column (3) balances covariates for meme and non-meme companies using the entropy-balancing technique. Columns (2) and (3) add controls for firm size (proxied by the natural logarithm of assets), cash ratio, debt ratio, and return on assets. All financial variables are winsorized at the 1% level. The *, , and * denote significance at the 1%, 5%, and 10% levels.

Figure 1 graphs the mean cumulative abnormal returns of meme stocks. The mean abnormal returns are represented by the solid line in the middle, while the dotted lines enclose the 95% confidence interval. Day “0” in this figure refers to October 1, 2019. The figure shows an economically and statistically significant gain for meme stocks around the time the major brokerages dropped trading commissions. In unreported results, we find that meme stocks had significant abnormal returns on October 1, 2019, when we use alternative asset pricing models such as the capital asset pricing model (“CAPM”) or Carhart four-factor model.⁶²

Figure 1. Cumulative Abnormal Returns for Meme Stocks

Note: This figure graphs the mean cumulative abnormal returns for meme stocks around October 1, 2019, when major brokerages abolished trading commissions (denoted as day 0). The dotted lines represent the 95% confidence interval for cumulative abnormal returns.

In addition to the abnormal returns, we also examine the magnitude of share turnover. Figure 2 presents data on the share turnover for meme stocks and other companies between 2015 and 2022. We define turnover as the daily average of the number of stocks of the firm traded as a percentage of total outstanding common stock, using data from CRSP. Since meme stocks are, on average, smaller firms, we subdivide non-meme companies into those belonging to the smallest quartile in terms of market capitalization and other bigger firms. Meme stocks saw both an increase in trading volume after the abolition of commissions on October 1, 2019, and a further increase in 2021–22 after the explosion of social media interest in these firms. There was a significant increase compared to both smallest-quartile and larger non-meme firms. Three points are notable. First, meme stocks had a higher turnover compared with non-meme stocks even in the first period, that is, before the abolition of commissions. Second, both meme and non-meme stocks saw an increase in trading volumes after the abolition of commissions, although the increase was markedly greater for meme companies. Third, during the time of meme surge, while the meme stock trading volume exploded, there seems to be no noticeable increase in trading volume for non-meme stocks.

Figure 2. Average Turnover for Meme Stocks and Other Firms

Note: This figure graphs the mean share turnover (shares traded each day as a percentage of total outstanding common stock) according to CRSP data. The data is presented separately for meme and non-meme stocks. Non-meme stocks are further subdivided into those that belong to the smallest quartile by market capitalization and larger firms. “Pre-Zero Commission” refers to the period from 2015 to September 2019, “Post-Zero Commission” to October 1, 2019, to December 31, 2020, and “Post-Meme Surge” to 2021–22.

We estimate a regression model in which we analyze the factors affecting the average daily turnover for CRSP companies in all three periods. We include as explanatory variables an indicator for meme stock, two dummies for Post-Zero Commission and Post-Meme Surge, and the interaction of the meme indicator with each time dummy. We include firm fixed effects to make sure the results are not driven by idiosyncratic factors unique to any given company. Both interaction terms are positive and statistically significant. The results are presented in Table 3. Note that, even controlling for firm fixed effects and time trends, meme companies seem to have especially gained with respect to this measure of liquidity in the latter time periods. The results remain qualitatively unchanged when we additionally control for firm market value. The event study results presented in this Section show that meme stock companies gained value around the time major brokerages abolished commissions. The influx of retail investors precipitated by zero commissions could therefore have been particularly impactful for the meme stocks. Moreover, the results on turnover indicate that meme firms saw greater trading volumes after the major brokerages eliminated commissions.

Table 3. Meme Stocks and Trading Volume
Post-Zero Commission	0.664***
	(0.0714)
Post-Zero Commission x Meme	3.252*
	(1.874)
Post-Meme Surge	0.517***
	(0.0822)
Post-Meme Surge x Meme	12.23***
	(3.634)
Constant	1.080***
	(0.0402)

Observations	20,764
R-squared	0.875
Firm Fixed Effects	Yes
Note: This table presents the results of a linear regression model in which the dependent variable is the daily percentage of outstanding shares that are traded. “Post-Zero Commission” refers to the time period of October 1, 2019, through December 31, 2020, and “Post-Meme Surge” to 2021–22. The regression model includes firm fixed effects, and all standard errors are clustered at the firm level. The *, , and * denote significance at the 1%, 5%, and 10% levels.

IV. DIRECT SHAREHOLDER ENGAGEMENT AT MEME STOCK COMPANIES

In this Part, we explore the effect of meme stock investing on the direct mechanisms for shareholder engagement: voting and submitting shareholder proposals. This can help us empirically assess claims that the influx of retail investors would affect corporate governance and possibly empower shareholders to engage with management more actively. To briefly summarize the findings, our empirical results show that predictions of retail investor-driven changes in corporate governance may be overstated. First, the level of shareholder voting at meme companies decreased after the abolition of commissions by online brokerages and decreased still further in the aftermath of 2021 meme surge. Second, we find no evidence of active shareholder engagement by way of submitting shareholder proposals at the companies in our sample, except in limited circumstances unrelated to corporate governance.

A. Non-Voting at Meme Stock Companies

An important claim in the literature is that the retail shareholders brought in after the meme phenomenon may be more likely to be assertive and more vigorously engage with management.⁶³ This is a plausible claim: if retail investors could coordinate their trades to attack institutional investors—a feat previously unimaginable—so, too, can they coordinate votes to have their voices heard. Accordingly, one could expect more retail shareholders to vote on governance proposals, including director elections and other consequential decisions (such as mergers and acquisitions and charter amendments), at these firms after 2021. Ideally, if we can observe each shareholder’s characteristics (for example, institutional versus retail), how many shares are owned by each shareholder, and how many of those shares are voted on, we will be able to tell exactly what the rate of participation among retail shareholders is. Nevertheless, due largely to the limitations on data, we do not have access to any information on whether certain votes came from a retail versus an institutional shareholder.⁶⁴

Instead, we rely on an indirect measure in estimating shareholder participation that is commonly used in the accounting literature. One way of such an indirect estimation is by measuring aggregate non-votes at shareholder meetings. The accounting scholarship attributes non-votes in shareholder meetings (that is, votes that were not cast for or against a proposal and were not abstentions) to retail investors.⁶⁵ Corporate insiders and institutional investors, on the other hand, are much more diligent in registering their votes. Under this standard assumption, if retail investors became more engaged after 2021, we could expect the overall share of non-votes to fall.⁶⁶

In analyzing the rate of non-votes, it is also important to account for the type of proposal. Shareholder proposals at U.S. public companies are generally of two types: routine and non-routine. Routine proposals are those that pertain to the company’s day-to-day operations but are not expected to significantly affect the company’s overall operation and performance. Examples of this type are proposals for the ratification of auditors or approving stock splits. By contrast, non-routine proposals typically relate to the company’s long-term strategy or are expected to have a significant impact on the company’s financial performance. Examples include the issuance of new stock, election of directors, a merger with another company, divesting a business unit, or any other proposal stockholders could have concerns with and would affect their ownership. For our purposes, there is an important distinction between these two types: brokers can vote shares on behalf of the beneficial owners for routine matters, but not for non-routine matters. Therefore, only shareholders can vote their own shares for non-routine proposals.⁶⁷

Figure 3 graphically presents the yearly average of non-vote rates on proposals at both meme and non-meme companies between 2015 and 2022. We hand-coded each proposal listed in the Institutional Shareholder Services (“ISS”) data as either “routine” or “non-routine” based on Rule 452 of the New York Stock Exchange (“NYSE”).⁶⁸ As expected, we find that non-routine proposals (in which brokers cannot vote on behalf of shareholders) have consistently higher levels of non-participation for both meme and non-meme firms.

More importantly, we find an increase in shareholder non-voting rate after 2018, concentrated in meme companies (for both routine and non-routine proposals). In fact, before 2019, meme companies had lower non-vote rates compared with non-meme companies, but by 2022, non-vote rates are at above 50% and 30% on non-routine and routine matters, respectively, at meme companies. At the same time, at non-meme companies, as Figure 3 shows, there seems to have been only marginal changes in non-vote shares over the same period. This is the opposite trend from what one would expect if the retail shareholders were more engaged with respect to corporate governance at meme firms, such as AMC and GameStop. Instead of seeing a burst of shareholder engagement, meme companies have seen increasing retail shareholder apathy in recent years.

Figure 3. Average Share of Non-Votes for Meme and Non-Meme Stocks over Time, by Proposal Type

Note: This figure presents information on the yearly average percentage of votes that were not voted in shareholder meetings. We define the number of non-votes as Total Outstanding Shares minus (Votes For + Votes Against + Abstentions). We split the data by meme/non-meme stock as well as proposal type (that is, whether it qualifies as “routine” as defined in NYSE Rule 452).

If we were to expect that retail shareholders are less likely to participate in direct governance, this finding, on the one hand, may not be too surprising. Recall, however, that many of these retail investors were the drivers of coordinated meme surges in early 2021, collectively taking a stance against institutional investors. There is also reason to believe that many of them have remained loyal to the firm.⁶⁹ If the fraction of retail investors at meme stock companies remains relatively high through 2021 and 2022, and many of them care more about the companies’ survival and performance, one would expect them to be more active in firm governance. From this perspective, the fact that the share of no-votes keeps increasing through 2021 and 2022, long after the initial “meme surge” was over, is surprising.

Table 4 presents a more formal regression analysis (using linear regression models), in which the dependent variable is the percentage of non-votes at a shareholder proposal level. We collected this data for all companies from the ISS database (from 2015 through 2022) to make sure we captured any secular time trends in shareholder voting across the market. Column (1) presents the baseline model, while column (2) adds financial variables as controls. We included firm fixed effects to account for any idiosyncratic factors unique to each company. Note, foremost, that the coefficient estimates (except for the estimate on the variable “Meme x 2019–20”), along with their statistical significance, are fairly consistent across the two models, indicating that the specifications are fairly robust. In terms of the results, at the top of the table, the dummy for non-routine proposals is positive (with the point estimates of 14.04 and 13.98, respectively) and highly statistically significant (at the 1% level), indicating that these types of matters generally have greater non-participation than routine proposals (per stock exchange regulations): non-vote shares on non-routine matters are about 14 percentage points higher compared with those on routine matters.

The coefficient estimates on 2019–20 and 2021–22 indicator variables are also positive and statistically significant, indicating that there is a general trend toward non-votes across all companies. When we interact both time period dummies with the Meme indicator, the coefficient for these terms is positive and highly statistically significant, at least in the baseline model, indicating that there seems to be more non-voting at meme companies after both the abolition of commissions and the surge in social media interest in these companies.⁷⁰ The rise in non-voting for meme stocks seems concentrated in non-routine proposals, as one would expect since brokers cannot vote on behalf of the shareholders on these issues. Most tellingly, the triple interaction of Meme, each time period dummy, and Non-Routine is also positive (with coefficient estimates ranging from about 7.5 to 8.1) and highly statistically significant (at the 1% level) in both the baseline model and with financial controls.

Table 4. Meme Stocks and Non-Voting
	(1)	(2)
	Baseline	With Financials
Non-Routine	14.04***	13.98***
	(0.198)	(0.223)
Meme x Non-Routine	–5.607***	–5.585***
	(1.495)	(1.534)
2019–20	0.681***	0.830***
	(0.140)	(0.170)
Meme x 2019–20	5.204***	2.650
	(1.780)	(1.760)
Non-Routine x 2019–20	–0.630***	–0.688***
	(0.149)	(0.162)
Meme x Non-Routine x 2019–20	7.910***	8.125***
	(1.406)	(1.425)
2021–22	3.899***	4.622***
	(0.195)	(0.232)
Meme x 2021–22	13.91***	11.59**
	(4.841)	(4.672)
Non-Routine x 2021–22	–3.297***	–3.531***
	(0.178)	(0.195)
Meme x Non-Routine x 2021–22	7.503***	7.901***
	(1.725)	(1.942)
Constant	12.29***	23.68***
	(0.179)	(2.087)

Observations	238,506	194,929
R-squared	0.699	0.735
Firm Fixed Effects	Yes	Yes
Firm Financials	No	Yes
Note: This table presents the results of a linear regression model in which the dependent variable is the percentage of shares that were not voted for a proposal at shareholder meetings. We define the number of non-votes as Total Outstanding Shares – (Votes For + Votes Against + Abstentions). 2019–20 equals 1 for years 2019 and 2020, while 2021–22 equals 1 for 2021 and 2022. We split the data by proposal type (that is, whether or not it qualifies as “routine” as defined in NYSE Rule 452). Column (2) adds controls for firm assets, cash ratio, debt ratio, and return on assets. Columns (1) and (2) include year and firm fixed effects, and all standard errors are clustered at the firm level. The *, , and * denote significance at the 1%, 5%, and 10% levels.

The estimates tell us that, compared with routine matters at meme companies at these two time periods, the share of non-votes on non-routine matters are about 7.5 to 8 percentage points higher. The results indicate that, for 2019–22, meme companies saw a greater rise in non-voting among shareholders as compared with non-meme companies, and this effect was especially pronounced for non-routine proposals for which brokers could not vote on behalf of shareholders.

B. Shareholder Proposals at Meme Stock Companies

As another measure of shareholder engagement, we looked at the number (and the content) of shareholder proposals that were submitted by retail shareholders at meme stock companies. For example, it is possible that even if the level of retail shareholder voting at meme companies has remained low (or decreased), the meme surge may have emboldened a minority of retail shareholders to take more active steps in submitting shareholder proposals to affect corporate governance and corporate policies. While there are other channels of influencing corporate governance—such as running a proxy contest or nominating a director candidate through proxy access (if the company allows it)—these other channels require significant economic resources (in the case of proxy contests) or more substantial ownership thresholds and holding periods (in the case of accessing proxy ballots directly). As such, these are less salient means for meme traders. For this reason, the more promising route for meme traders is likely through submission of a shareholder proposal.

First, we discuss some institutional background and a potential complication for our empirical analysis. The eligibility requirement for a shareholder to submit a shareholder proposal is governed by Rule 14a-8,⁷¹ which imposes an ownership threshold and a holding period requirement. Once a proposal is submitted by an eligible shareholder, the SEC rule requires the company to add the proposal to the agenda for voting at the next annual shareholders’ meeting, unless the SEC provides special permission to exclude it from consideration.⁷² Since 1998, Rule 14a-8 has maintained a relatively low share ownership threshold: it required only that a shareholder had held at least $2,000 or 1% of a company’s securities for at least one year.⁷³ The SEC, however, in 2020 replaced the $2,000 threshold with three alternative thresholds and adjusted the corresponding holding periods. Specifically, (1) if a shareholder owns more than or equal to $25,000, then he may submit a proposal if he has held the shares for at least one year; (2) if a shareholder owns less than $25,000 but more than or equal to $15,000, he must have owned company shares for at least two years; and (3) if a shareholder owns less than $15,000 but more than or equal to $2,000, he must have been a stockholder for at least three years.⁷⁴ The rule was proposed on November 5, 2019,⁷⁵ adopted on September 23, 2020, and went into effect on January 4, 2021.⁷⁶ However, the SEC noted that the changed thresholds would only affect proposals submitted for annual meetings that take place after January 1, 2022.⁷⁷

The SEC’s revised thresholds are more difficult to meet, and this was indeed the Agency’s intention. The previous requirement of $2,000 and a one-year holding period is arguably a more achievable threshold for meme traders. The revised thresholds and the corresponding holding periods are much less likely to be met by meme traders—especially the segment of retail investors that began participating in the stock market only after the introduction of commission-free trading platforms. For this reason, we can reasonably expect little activity from meme traders by way of shareholder proposals for annual meetings taking place after January 1, 2022.

As a threshold inquiry, we first examined whether investors reacted to the SEC’s decision to change the Rule 14a-8 thresholds. There were no changes in the thresholds between the SEC’s rule proposal (November 5, 2019) and rule adoption (September 23, 2020). We examined both event dates—the rule proposal date as setting the market’s expectation and the rule adoption date as finalizing the proposal through adoption. If meme traders were particularly committed to influencing corporate governance, these events may correlate with negative stock market reactions. In unreported results, we found no significant market reactions for meme stock companies for either event. We interpreted this finding to be consistent with the idea that meme traders were never particularly interested in participating in corporate governance.

We followed through by reviewing the meme stock companies’ definitive proxy statements filed with the SEC’s EDGAR system from 2015 through 2022 to see whether they included shareholder proposals. These proxy statements typically indicate whether a particular proposal is submitted by a shareholder. Even in the absence of any such specification, the proxy statements will invariably indicate whether the board approves each proposal, which is a good indication that the proposal is internally proposed. Note, however, that the lack of shareholder proposals in definitive proxy statements does not necessarily indicate that no shareholder submitted a proposal to be included in the proxy. First, under Rule 14a-8, management is permitted to exclude a shareholder proposal under a few specific circumstances.⁷⁸ However, exclusion is permitted only after management submits its reasons to the SEC. For this reason, we also searched through the SEC’s no-action letter archives to see whether any of these companies sought to exclude shareholder proposals, and if so, on what grounds. Second, it is also possible for management to persuade a shareholder to withdraw a proposal through negotiation.⁷⁹ These are done through private agreements, and we are unaware of any public data set that would capture withdrawn proposals.⁸⁰ For this reason, for data analysis purposes, we will assume that all properly submitted shareholder proposals are reflected under our search. Nevertheless, given the possibility of negotiations that may occur as a result of submitted-but-withdrawn shareholder proposals, we will look to other measures of shareholder engagement in Part V.

For all meme companies in the sample, with respect to observable shareholder proposals, we verified our numbers and analysis for this Section using the SharkWatch dataset, which is a standard resource for studying shareholder proposals.⁸¹ Table 5 describes, for each meme stock company, the number of shareholder proposals (1) included in the company’s proxy statements, (2) approved each year, and (3) properly excluded via the SEC’s no-action letter. Some benchmark figures may be helpful to set proper expectations. In terms of raw numbers of shareholder proposals among the S&P 1500 companies, Professors Kobi Kastiel and Yaron Nili document “a relatively steady and significant number of shareholder proposals submitted to the S&P 1500 [between 2005 and 2018] (an average of 517 proposals per year).”⁸² The pattern, however, is not uniform across all 1500 companies. In 2015, for example, “over 450 proposals were submitted to companies in the S&P 500, which is comprised of large-cap companies,” while “fewer than 150 shareholder proposals [combined] were submitted to the small- and mid-cap companies that comprise the S&P Mid-Cap 400 (S&P 400) and S&P 600, respectively.”⁸³ Given that meme stock companies are small-cap to mid-cap companies, there would be no expectation that any of these companies would be inundated with shareholder proposals.

Nevertheless, the results shown in Table 5 are revealing. For AMC Entertainment, Inc., Blackberry, Express, Inc., Koss, and Vinco Ventures, there were no shareholder proposals submitted between 2015 and 2022.⁸⁴ The same is true with Robinhood, but the company went public recently, and thus has had only one definitive proxy statement issued (in 2022). Thus, for these companies, no proposal was ever included in any definitive proxy statement (which the board did not recommend), and none of these companies have had to request no-action letters from the SEC (to exclude a shareholder proposal) during the time frame.

Table 5. Shareholder Proposals at Meme Stock Companies, 2015–2022
Company\Year	Shareholder Proposals Included/Approved/Excluded
Company\Year	2015	2016	2017	2018	2019	2020	2021	2022
AMC Entertainment, Inc.	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
Bed Bath & Beyond	0/0/0	3/2/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
Blackberry	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
Express, Inc.	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
GameStop Corp.	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/3
Koss	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
Robinhood	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0/0/0
Vinco Ventures	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0	0/0/0
Note: This table presents the number of shareholder proposals at meme companies between 2015 and 2022. For each company-year observation, we provide the total number of shareholder proposals included in the proxy statements, approved by shareholder vote, and excluded via SEC no-action letters.

Bed Bath & Beyond received three shareholder proposals in 2016, all of which the board recommended against. These included (i) a proposal for the board to implement proxy access, (ii) a proposal to have shareholders approve future severance packages, and (iii) a proposal for equity-based compensation for senior executives. Of these three, only the last one failed to pass.⁸⁵ Note also that these proposals significantly predate the meme surge, and as such, cannot be attributed to the influx of retail investors.

Finally, GameStop sought and received three no-action letters from the SEC for excluding shareholder proposals, all dating to April 22, 2022.⁸⁶ These involved proposals by three different shareholders, and management could permissibly exclude all of them for failing to meet the deadline for submission. Note, however, that given that these proposals were for the 2022 annual meeting, which requires the raised thresholds, these shareholders are unlikely to be meme traders. Meanwhile, the content of these proposals is also worth examining.

In one proposal, a self-described registered GameStop shareholder (who didn’t specify how many shares he held) proposed that the company offer a non-fungible token (“NFT”) dividend to its stockholders.⁸⁷ In another proposal, a shareholder who claims to own 191 Class A shares proposed that the board “immediately engage the services of the Company’s Transfer Agent, Computershare Limited (“Computershare”) to enable both investment and Direct Registration of Class A shares in both Roth and Traditional Individual Requirement Account (“IRA”) Shareholder Investment Programs at Computershare.”⁸⁸ Finally, a third shareholder who beneficially owns 540 Class A shares of GME submitted an identical proposal as the second shareholder.⁸⁹

What can we learn from the shareholder proposals we examined? The 2016 proposals by Bed Bath & Beyond shareholders do reflect a genuine attempt at participating in corporate governance matters, but as mentioned already, these efforts predate the influx of retail investors. The GameStop shareholder proposals, however, tell a different story. On the one hand, they do indicate retail investor participation: it is possible that they were encouraged by the meme surge of 2021 to organize some activist effort. On the other hand, these proposals also do not relate to corporate governance matters: one is a dividend payment suggestion, while the other is a proposal to help certain retail shareholders obtain tax advantages. As of yet, there is no indication that GameStop investors—meme traders or not—are particularly likely to bring about governance reforms through shareholder proposals.

V. BEYOND VOTING: ESG, DIRECTOR INDEPENDENCE, BOARD GENDER DIVERSITY, AND R&D

Voting and shareholder proposals are not the only ways shareholders can influence corporate governance at public companies. Boards, institutional investors, and policymakers are increasingly paying attention to a firm’s prosocial performance as captured by ESG metrics.⁹⁰ Even if retail investors do not directly participate in governance (through voting or submitting proposals), it is possible that their presence and preferences could indirectly influence how firms are governed. For example, the meme surge could have left a considerable imprint on public companies if retail investors managed to make their firms’ preferences more prosocial. For one thing, because management may be able to raise extra cash through at-the-market offerings at inflated stock prices,⁹¹ managers have reason to cater to the preferences of meme traders—that is, to make sure that meme surges persist (especially in times of trouble) and that these investors do not go away. In addition, it is also possible that a meme trader may have submitted a shareholder proposal but decided to withdraw it in return for some concession from the board or management, such as instituting some prosocial changes. Another possible indirect effect of meme surges could have been an increase in R&D spending. For example, those companies that engaged in at-the-market offerings could have invested the new funds in transformative innovative activity. Below, we also explain other mechanisms that were highlighted in the finance literature.⁹² To estimate these possible indirect influences, in this Part, we first assess the impact of the meme phenomenon on firm ESG scores, board independence, and gender diversity. We then investigate whether meme companies spent more on R&D and capital expenditures after the influx of retail investors.

A. ESG Scores at Meme Stock Companies

An important claim in the legal scholarship on retail investors is that these new entrants to the financial markets have different goals and expectations from management (as compared with more established institutional players or to retail investors from the previous generation). Gramitto Ricci and Sauter, for example, envisage meme trading as “a social movement able to bring business corporations to serve their original partly-private-partly-public purpose.”⁹³ In other words, scholars envisioned meme companies as potentially deviating from the shareholder wealth-maximization norm and instead advancing social and environmental causes with pressure from retail investors. There is a demographic aspect to this argument. As Fisch observes, many of the retail investors who invested in meme stocks were younger people. Since some argue that the millennial generation has different preferences and is in favor of socially responsible investing even at the cost of wealth-maximization, Fisch expected the young cohort of retail investors to potentially pressure management to improve ESG metrics.⁹⁴ However, Fisch also notes that “the extent to which citizens will pursue stakeholder or societal goals in their role as investors remains unclear.”⁹⁵

To shed some light on the extent to which meme traders affected socially responsible investing and management, we obtained data on ESG scores for each firm in the Compustat dataset between 2015 and 2021. The ESG scores are taken from the MSCI ESG Score Indexes. This index measures ESG in several different ways, but we chose the most comprehensive measure—industry-adjusted total ESG score—as our outcome of interest.⁹⁶ MSCI measures the ESG score for each firm at different points in the year. Therefore, we counted an ESG score to “belong” to a given year if it was assessed after June 30 of the previous calendar year or before June 30 of that year. For example, any ESG score assessed between June 30, 2015, and June 30, 2016, is counted as that firm’s 2016 ESG score. We estimated a difference-in-difference regression model assessing whether ESG scores changed differently for meme stocks after the abolition of commissions and the meme surge of 2021. Table 6 presents the results of this regression.

Table 6. Meme Stocks and ESG Scores
	(1)	(2)
	Baseline	With Financials
2019–20	0.326***	0.295***
	(0.0305)	(0.0348)
2019–20 x Meme	–0.0817	–0.0115
	(0.127)	(0.125)
2021	0.644***	0.604***
	(0.0434)	(0.0493)
2021 x Meme	–1.818**	–1.727*
	(0.918)	(0.909)
Constant	4.219***	4.244***
	(0.0515)	(0.0792)

Observations	13,739	12,039
R-squared	0.804	0.805
Firm Fixed Effects	Yes	Yes
Firm Financials	No	Yes
Note: This table presents the results of a linear regression model in which the dependent variable is the yearly industry adjusted ESG score reported for each firm by MSCI ESG Indexes. 2019–20 equals 1 for years 2019 and 2020, while 2021 equals 1 for 2021. Column (2) adds controls for firm assets, cash ratio, debt ratio, and return on assets. Columns (1) and (2) include firm fixed effects, and all standard errors are clustered at the firm level. Continuous variables are winsorized at the 1% level. The *, , and * denote significance at the 1%, 5%, and 10% levels.

As shown in Table 6, there is no observable positive effect of meme trading on our treated companies with respect to ESG scores, either after the abolition of commissions in 2019 or the rise in social media interest in 2021. In fact, not only are all the coefficient estimates on (2019–20 x Meme) and (2021 x Meme) variables negative, but the coefficient estimates on (2021 x Meme) variable are also statistically significantly negative, with or without financial controls, at 10% and 5% levels, respectively. While not conclusive, these results are consistent with the earlier results on shareholder voting and proposals, and perhaps not too surprising. If we expect that the new retail investors are more passive, it would not be surprising to expect that the companies would face less pressure from the retail investors and be less inclined to improve upon ESG issues, even if retail investors may care more about these topics in their personal lives. Furthermore, as discussed briefly in Parts II and III, meme firms had higher debt than other firms, and many of them had faltering business models. With an influx of new passive shareholders, management at these firms may have been tempted to reduce expenditure in compliance or ESG initiatives, especially when they know that they will face little pressure from their retail shareholder base.

B. Board Independence and Diversity at Meme Stock Companies

Next, we looked at the relationship between meme trading and board characteristics. We used data on director independence and board gender diversity from BoardEx, with the dependent variable equaling the percentage of a company’s board that is independent or female, depending on the empirical test.⁹⁷ Table 7 presents regression analyses in which the percentage of independent directors is the dependent variable. Leading academic commentators, regulators, and institutional investors usually take a higher share of independent directors to be a sign of better corporate governance,⁹⁸ even though the empirical evidence on the correlation between board independence and firm performance is mixed.⁹⁹ Regardless of whether director independence boosts firm value, the results in Table 7 indicate that meme firms did not experience a significant increase in the share of independent directors either after the abolition of commissions or during the meme surges on social media. Nevertheless, unlike the ESG results in Table 6, we do not see meme companies performing “worse” than other companies. Our results simply suggest that there is no significant relationship between the meme phenomenon and director independence.

Table 7. Meme Stocks and Board Independence
	(1)	(2)
	Baseline	With Financials
2019–20	1.489***	1.437***
	(0.143)	(0.165)
2019–20 x Meme	4.573	4.753
	(2.920)	(2.932)
2021–22	2.729***	2.545***
	(0.184)	(0.219)
2021–22 x Meme	5.251	5.596
	(3.771)	(3.782)
Constant	75.99***	71.91***
	(0.0641)	(1.404)

Observations	21,581	19,538
R-squared	0.805	0.805
Firm Fixed Effects	Yes	Yes
Firm Financials	No	Yes
Note: This table presents the results of a linear regression model in which the dependent variable is the percentage of directors that are independent, per BoardEx. 2019–20 equals 1 for years 2019 and 2020, while 2021–22 equals 1 for 2021 and 2022. Column (2) adds controls for firm assets, cash ratio, debt ratio, and return on assets. Columns (1) and (2) include firm fixed effects, and all standard errors are clustered at the firm level. Continuous variables are winsorized at the 1% level. The *, , and * denote significance at the 1%, 5%, and 10% levels.

Board gender diversity is another area in which major corporations have focused in recent years, seeking to improve the representation of women. For example, California recently passed legislation mandating that firms headquartered in the state ensure that they had at least a minimum number of women directors on the board.¹⁰⁰ As with director independence, the empirical evidence for board gender diversity improving firm performance is mixed.¹⁰¹ Given, however, the concerted recent efforts to improve board gender diversity, we examine whether meme firms saw any changes with respect to this corporate governance measure. The regression analyses presented in Table 8 do not show meme companies granting women greater representation on boards after either the abolition of commissions or the advent of the social media-driven meme surges. Therefore, like director independence, we do not observe any significant recent changes for meme firms when analyzing board gender diversity.

Table 8. Meme Stocks and Board Gender Diversity
	(1)	(2)
	Baseline	With Financials
2019–20	6.012***	5.689***
	(0.167)	(0.191)
2019–20 x Meme	3.033	3.314
	(3.842)	(3.850)
2021–22	10.50***	9.986***
	(0.226)	(0.262)
2021–22 x Meme	–3.707	–2.981
	(6.055)	(6.128)
Constant	14.09***	2.532
	(0.0767)	(1.617)

Observations	21,581	19,538
R-squared	0.763	0.759
Firm Fixed Effects	Yes	Yes
Firm Financials	No	Yes
Note: This table presents the results of a linear regression model in which the dependent variable is the percentage of directors that are female, per BoardEx. 2019–20 equals 1 for years 2019 and 2020, while 2021–22 equals 1 for 2021 and 2022. Column (2) adds controls for firm assets, cash ratio, debt ratio, and return on assets. Columns (1) and (2) include firm fixed effects, and all standard errors are clustered at the firm level. Continuous variables are winsorized at the 1% level. The *, , and * denote significance at the 1%, 5%, and 10% levels.

We note that the results from this Part are not necessarily inconsistent with the observations made in the literature about retail investors primarily belonging to the millennial generation¹⁰² or this age cohort of investors having pro-ESG preferences. Instead, taken together with the earlier results about low levels of voting by retail investors, they suggest that retail investor apathy renders them unlikely to be able to change management policies toward the environment or social causes. Therefore, while the earlier scholarship on retail investors understandably thought millennial and Gen Z retail investors would move firms away from the wealth-maximization norm once they got a seat at the table, they underestimated the possibility that these investors would neglect to actually take their seat by voting or otherwise engaging with management.

C. Profitability, R&D, and Capital Expenditure

As the final set of empirical exercises, we explore whether the influx of retail investors at the meme stock companies may have (indirectly) affected the financial performance or operations at the companies. To set the stage, Figure 4 presents three graphs on the average ROA, average R&D expenses, and average capital expenditures (“CapEx”), for meme and non-meme companies between 2015 and 2021. With respect to the ROA (a profitability measure) shown in the upper panel, there is a clear downward trend at meme companies while the non-meme companies’ average profitability seems much more stable over the same period. At the beginning of the sample period, in fact, meme stock companies were on average more profitable than other, non-meme companies, but the meme companies have experienced a sustained slide in their ROA, and by the end of the sample period, meme companies are performing significantly worse than non-meme companies. Despite some meme companies raising large sums of money by conducting at-the-market offerings at elevated prices,¹⁰³ notably Game Stop and AMC, these firms saw a decrease in profitability.

The substantial decrease in profitability of meme companies could be because their business models may have been fundamentally untenable in a changing world. It is also possible that the agency costs within these firms have gotten worse due, for instance, to less monitoring and less activism by their new retail shareholders.¹⁰⁴ The average R&D expenses and capital expenditure trends (as shown in the middle panel and lower panel, respectively) seem to suggest that, at the operational level, meme companies are spending less on innovation and structural improvements. Before we proceed, we should note that the small number of meme stocks is bound to introduce more variability in numerical averages. As such, there may generally be more noise in the time-trends in Figure 4 for meme (as compared with non-meme) stocks. However, the consistent downward trend for meme companies does indicate a real trend in profitability and innovative expenditures for these firms.¹⁰⁵

Figure 4. Average Return on Assets, R&D Expenses, and Capital Expenditures for Meme and Non-Meme Stocks

Note: This figure presents three separate graphs: mean return on assets, R&D expenses, and capital expenditures, between 2015 and 2021, separately for meme and non-meme companies.

To get a better understanding of meme companies’ performance, we took a closer look at the two operational measures: R&D and capital expenditures. Two theories of R&D spending are potentially relevant to meme companies. First, financial economists have explored the link between an increase in firms’ market valuation and innovation activity. Specifically, a study by a group of financial economists, using mutual fund flows as a measure of market’s optimistic valuation, found a “very strong and robust association” between firm overvaluation and R&D spending.¹⁰⁶ They found that R&D spending is more sensitive to firm overvaluation than to growth in company sales and cash flow.¹⁰⁷ The underlying reasoning seems to be that corporate managers respond to higher market valuations by becoming more optimistic and engaging in more creative (and higher-risk) forms of innovation. If this theory applies to meme companies, one might expect that meme surges would have emboldened executives at these companies to increase R&D spending.

On the other hand, others have documented increase in R&D spending (and other innovative activities) associated with a larger fraction of institutional ownership.¹⁰⁸ As institutional ownership increases, one can argue that this will increase shareholder monitoring (and lower agency costs) and induce the firm managers to engage in more innovative activities (and not shirk), which, in turn, should correlate with various measures of innovation and long-term investment, such as R&D spending and capital expenditures. Moreover, institutional investors have a long-term orientation, which allows managers to make risky expenditures on innovative projects without fear of being fired for failing to deliver short-term profits.¹⁰⁹ To the extent that this theory applies to meme stock companies, one might expect that the influx of retail investors and the resulting transformation of the stockholder base at these companies¹¹⁰ would lead to these companies to decrease their R&D spending, since these firms saw ownership change hands from institutional investors to retail participants. Accordingly, examining how R&D spending has changed at meme stock companies could shed light on which of the two theories is more likely at play. We explored this question by conducting the standard difference-in-difference regression as in the rest of this Article and using R&D and capital expenditures as alternate dependent variables.¹¹¹

Table 9. Meme Stocks and Expenditures on Innovation
	(1)	(2)
	R&D Expenses	Capital Expenditures
2019–20	14.38***	2.485
	(1.574)	(3.943)
2019–20 x Meme	–28.59**	–62.43***
	(12.85)	(20.67)
2021–22	30.10***	18.58***
	(2.801)	(5.872)
2021–22 x Meme	–46.20***	–91.18*
	(15.10)	(48.18)
Constant	95.81***	273.9***
	(0.896)	(1.967)

Observations	28,247	34,519
R-squared	0.969	0.957
Firm Fixed Effects	Yes	Yes
Note: This table presents the results of a linear regression model in which the dependent variable is annual corporate R&D spending in column (1) and capital expenditures in column (2). 2019–20 equals 1 for years 2019 and 2020, while 2021–22 equals 1 for 2021 and 2022. Columns (1) and (2) include firm fixed effects, and all standard errors are clustered at the firm level. The *, , and * denote significance at the 1%, 5%, and 10% levels.

Table 9 presents the results of these regressions. As seen by the negative coefficient estimates on two interaction dummy variables, “2019–20 x Meme” and “2021–22 x Meme,” the regression results show that there was a significant decrease in both R&D and capital expenditures at the meme companies both after the 2019 abolition of commissions and the meme surge of 2021.¹¹² Except for the coefficient estimate on the “2021–22 x Meme” in capital expenditures regression, which is significantly negative at the 10% level, the other estimates are significant at the 5% level. These results indicate that, unlike the case for more traditional measures of cash inflows, such as mutual fund flows, meme surges are not associated with increases in either R&D spending or capital expenditure. Rather, the results support the existing findings in the literature that an increase in institutional ownership is correlated with more R&D and capital expenditure spending. Therefore, when meme companies swapped institutional investors for meme traders in recent years, managerial incentives to spend on innovation may have decreased.

VI. DISENTANGLING MEME INVESTING AND MEME SHAREHOLDING

The central inquiry of this Article has been how a dramatic change in shareholder base can affect corporate governance and whether retail investors can bring about meaningful changes as retail shareholders. While the time trends surveyed in Part I are consistent with more meme investing, meme investing is not, in turn, synonymous with meme shareholding. Indeed, the results discussed in Part II to Part V suggest that these new market entrants have not shaken up the way corporations are governed on an ongoing basis. The main question is why. In this Part, we explore several reasons as to why meme investing has not translated into meme shareholding.

A starting point is recognizing that despite the natural connection between retail investors and retail shareholders, their actual activities are quite different. As an investor, an individual is concerned about profitable short or long run transactions. Her activities include studying market information and diversifying portfolios. As a shareholder, an individual is concerned about capital gains, dividend payments, and her control rights (what may collectively be called “corporate governance”). She has the right to participate in shareholder voting, nominate director candidates, submit proposals, or even run proxy contests.¹¹³ An individual faces different challenges depending on whether she is acting as an investor or as a shareholder. A trader is vulnerable at the moment she is transacting because she may be purchasing or selling stocks at an unfair price due to undisclosed information.¹¹⁴ By contrast, a shareholder is vulnerable as long as she owns the stock because corporate misconduct and breaches of fiduciary duties can reduce the share price.¹¹⁵

More to the point, there is a significant difference between the payoffs of these activities. Retail traders participating in a meme surge will trade with a certain expectation and the payoff from their trades may be realized (relatively) quickly. There is a sense of instant gratification as well as an immediate opportunity to participate in a social activity. By contrast, retail shareholders may cast their votes only to find out that their votes have made no difference to the outcomes—for example, because the median voter is not among them—or that the proposals approved do not bring about any immediate changes in the way their corporations are run. In addition, if meme stock traders are driven by quick payoffs, they may not even be shareholders as of their company’s record date—in other words, they may not be eligible to vote by the record date for the annual meetings.

Another factor that may be driving the result is that technological developments may have reduced participation costs for shareholder engagement but not information costs. Participation costs refer to the resources the ordinary individual would need to learn about a firm and invest in it, while information costs are the costs she must incur to conduct research into the firm’s business operations and corporate governance. The digital innovations that sparked meme trading, such as the abolition of trading commissions, may not have reduced the information costs of shareholder participation in the same manner that they reduced participation costs of trading. Because meme trading is not an information-intensive activity, mobile apps like Robinhood and the abolition of trading commissions paved the way for retail traders. By contrast, shareholder voting is an inherently information-intensive activity, and thus, even with technologies that are designed to reduce participation costs, information costs that come with voting cannot be fully eradicated. This may account for why a sudden burst of enthusiasm for one type of activity may not instantly translate to a groundswell for another form of market participation.¹¹⁶

It is also not insignificant that meme surges to date have been limited to a small set of companies that are not randomly selected. In discussing some common denominators among meme stock companies, one analysis catalogues factors such as low stock prices and enduring cultural relevance.¹¹⁷ Indeed, our analysis of meme stocks reveals that these firms are mid- to small-cap companies, valued under $10 billion in market capitalization (some, in fact, have a much smaller market capitalization), with low stock prices.¹¹⁸ Their modest sizes imply that even trades by a subset of retail investors can affect their stock prices—as such, they can be targets of short squeezes. At the same time, small companies are also more likely to suffer from a lack of significant corporate governance activities. As Kastiel and Nili documented, firms with smaller market capitalizations are less likely to adopt “best practices” in corporate governance and are less organized in doing so.¹¹⁹ This could in part be because they are less likely to be targets of engagements by institutional shareholders¹²⁰ or attract shareholder proposals related to governance.¹²¹ Since meme companies have thus far been smaller firms, this suggests that they are unlikely to become overnight corporate governance exemplars.

Finally, one explanation consistent with our findings is that the segment of retail investors that entered the market as the result of the abolition of commission fees is not representative of the previously existing retail investor base.¹²² Rather, they represent a particular subset of investors—those that were highly sensitive to then-existing low transaction fees. While they may have welcomed the commission-free trading platforms and have actively participated in such activities, those investors may also be presumptively unlikely to bear other types of transaction costs, such as submitting shareholder proposals or voting at annual meetings.

We believe the disjuncture between investing and share ownership may explain why meme surges and their impacts have been confined to the trading markets and presently remain divorced from meaningful shareholder activities in corporate America. These differences, of course, are not set in stone. As companies innovate and technological innovations lower the cost of shareholder engagement, it remains possible that future retail shareholders can make a meaningful difference at companies. This can also shift the balance of power away from institutional shareholders and toward retail shareholders. The jury is out on how such changes will come about in the future.

CONCLUSION

This Article has examined the impact of the dramatic influx of retail shareholders (from the “meme surge” of 2021) on various corporate governance and financial metrics at meme stock companies. Our analysis suggests that retail shareholders could be the leopards that failed to change their spots. For one, during the period when retail investor ownership of meme stocks has increased, the rates of non-voting have significantly risen at meme companies. This is in contrast to the rate of non-voting at non-meme companies, which has remained fairly stable over the same period. Although we cannot directly measure that the non-votes were coming more from retail investors—given that non-participation is generally attributed to retail investors and other non-meme companies were not experiencing anything similar in shareholder participation¹²³—the result supports the hypothesis that the surge of retail investor interest in these companies is linked to the rise in non-voting.

Importantly, we observe that the increase in non-votes began in 2019, the same year that major brokerages abolished trading commissions, and the rate of non-votes went even higher in 2022, long after the meme surge was over. This indicates that the non-votes were not being driven by short-term speculators who may have participated in the meme surge of 2021 purely for financial gain and without any interest in democratic participation. The result is also consistent with the event-study evidence that the 2019 advent of zero-commission trading could have stirred retail investor interest in meme stocks (along with others). Retail investors have also failed to affect corporate governance at meme companies through the shareholder proposal process.

The Article also explored possible indirect avenues through which retail investors could have influenced meme companies. We find that the retail investors have been unable to translate their preferences into concrete improvements in the firms’ ESG scores or board independence and gender diversity. Furthermore, meme surges have not had an indirect effect on corporate innovation through R&D spending and capital expenditure. This finding contrasts with the earlier scholarship that showed positive correlation between increased valuation (for example, from mutual fund flows) and R&D spending, but it is consistent with the findings that showed a positive correlation between an increase in institutional ownership and innovative activities. In sum, all evidence to date suggests that meme trading may be a social phenomenon that remains largely orthogonal to retail shareholders’ aspirations to transform corporate governance. The demographic, societal, and technological changes surveyed in Part I could surely presage an increased role for retail investors at some time in the future. However, our empirical analysis suggests that this notion of democratized governance is yet to arrive at the firms targeted by the recent meme surges.

The Article’s primary focus has been on a handful of meme stock companies, such as GameStop, AMC, and Bed Bath & Beyond, with the principal finding that the new retail shareholders at these companies do not seem to be active in engaging with the management or in influencing the companies’ governance outcomes. Given that the Article’s focus is on a small number of companies that went through an unusual experience of facing a sudden surge of retail investors’ interest, one needs to be cautious about generalizing the results to other companies or making overarching conclusions. At the same time, these companies were chosen precisely because they were the primary targets of meme trading. Thus, to the extent we should have observed a new paradigm of corporate governance associated with meme surges, these companies would have been the most promising ones. Furthermore, particularly with respect to retail investors who remained loyal to the meme companies long after the “meme surge” was over, one would have expected them to be much more active in corporate governance and improving firm performance.

In sum, we believe that the Article’s findings are informative in getting a better understanding of retail shareholders’ engagement and potential democratizing benefits of allowing more retail investor participation. To get a better understanding of the importance of retail investor base on corporate governance, a future research project may take a closer look at how technological changes, including the introduction of zero-commission trading, may have had a broader effect on the capital markets and the more general impact of retail investors on corporate governance across a larger segment of the market. As the meme phenomenon spreads to banking stocks, SPACs, and bankrupt firms, research into meme investing and shareholder activity will become more important¹²⁴ and shed new light on the issue of shareholder base and corporate governance.

97 S. Cal. L. Rev. 1419

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Dhruv Aggarwal*

* Assistant Professor of Law, Northwestern Pritzker School of Law.

Albert H. Choi†

† Paul G. Kauper Professor of Law, University of Michigan Law School; Research Member, European Corporate Governance Institute (“ECGI”).

Yoon-Ho Alex Lee‡

‡ Professor of Law, Northwestern Pritzker School of Law; Director, Northwestern University Center on Law, Business, and Economics. The authors thank Quinn Curtis, Jill Fisch, Sue Guan, Dorothy Shapiro Lund, Frank Partnoy, Alex Platt, Roberta Romano, Kathy Spier, George Triantis, and Jonathon Zytnick; conference participants at the 2023 Corporate and Securities Litigation Workshop, the 2023 Korean Commercial Law Association Annual Meeting, the 2023 American Law and Economics Association Annual Meeting, the 2023 Winter Deals Conference, the 2023 Conference on Empirical Legal Studies, and the Law and Technology Conference at the University of Southern California; and workshop participants at Vanderbilt University Law School, Northwestern Pritzker School of Law, University of Michigan Law School, Bocconi University, Corporate Law Academic Webinar Series (CLAWS), Council of Institutional Investors (CII) Webinar Series and 2023 NYU Corporate Roundtable for many helpful comments and suggestions. The authors thank Irving A. Birkner (Kellogg School of Management at Northwestern University), Shay Elbaum (University of Michigan Law Library), and Clare Gaynor Willis (Northwestern Pritzker School of Law Library) for help with data collection, and Danny Damitio, Andrea Lofquist, Michael Palmer, and Nanzhu Wang for their excellent research assistance. Comments are welcome to dhruv.aggarwal@law.northwestern.edu, alchoi@umich.edu, and alex.lee@law.northwestern.edu.