Article

The Structures of Local Courts

Local courts are, by far, the most commonly used courts in our justice system. Cases filed in local courts outnumber those filed in federal court by a factor of over two hundred. Few litigants who receive local-court judgments appeal the matter further. The justice we possess is thus largely the justice created by local courts, but they are largely absent from the law school curriculum. We know astonishingly little about them.

This Article begins to remedy that absence by providing a structural account of local courts that situates them as distinct institutions within the justice system. Because local courts are influenced by all levels of government—federal, state, and local—they exhibit a radical diversity—not just between states but within them, and not just in the way that they operate but in their organizing principles. The Article links the many problems experienced by local courts—chronic underfunding and a lack of oversight cause problems that run deep—with the state and federal structures that shape local-court function and administration. On the state side, the Article analyzes hand-coded, raw survey data from the National Center for State Courts to describe the interactions between local courts and administrative bodies within state judicial branches. Although states differ, administrative distance between state and local institutions joined with the rarity of appeals from local-court judgments makes local courts meaningfully independent from the state system. Federal law compounds this independence by sheltering local courts from external scrutiny. Judicial federalism doctrines like preclusion, abstention, and habeas corpus require federal courts to defer to the legal and factual findings of local courts. Federal enforcement doctrines like standing and immunity protect local courts from legal reform efforts.

The Article then reevaluates our theories of judicial federalism in light of the diversity and problems of local courts. It argues that the values of judicial federalism invoked by both courts and scholars rely on the fiction that state courts are monoliths. In fact, the reality of state courts—including the diversity and relative obscurity of local courts—frustrate these values. Instead, the Article argues that the more valuable conceptual function of local courts is not normative but rather descriptive: they provide us with an understanding of the justice we have, not the justice we aspire to or the justice required by law. They—and not federal courts—are the starting points from which we should define and evaluate our system of justice.

Introduction

Ten years ago, I visited the courthouse in Wilkinson County, a small, majority-Black county in the southwest corner of Mississippi. It had an old and genteel Beaux-Arts façade and stood in the center of a town square, lending a sense of history to the diners and clothing stores around. Inside, dust yellowed the windows, blotches deepened the color of the carpets, holes in the ceilings exposed electrical wires. Marriage records labeled “White” and “Colored” through 1984 filled the county clerk’s bookcases. Many forms of history.1 1.Courthouse architecture is a fascinating topic in its own right. See Judith Resnik & Dennis Curtis, Representing Justice: Invention, Controversy, and Rights in City-States and Democratic Courtrooms (2011); Norman W. Spaulding, The Enclosure of Justice: Courthouse Architecture, Due Process, and the Dead Metaphor of Trial, 24 Yale J.L. & Human. 311, 315 (2012) (“[T]he American concept of due process of law is itself intimately bound up with the location, design, and use of law’s administrative space.”). For recent images of local courts around the country, see American Courthouses: A Photo Archive by John Deacon, http://www.courthouses.co/ (last visited Apr. 12, 2020) [https://perma.cc/K2MQ-UYMN].Deteriorating physical conditions of local courthouses are not unique to Wilkinson County and go beyond “complaints about the color of the carpeting.” ISBA Special Comm. on Fair & Impartial Courts, Ill. State Bar Ass’n, Report on the Funding Crisis in the Illinois Courts 20 (2013) [hereinafter ISBA Report], https://www.isba.org/sites/default/files/­committees/Report%20on%20the%20Funding%20Crisis%20in%20the%20Illinois%20Courts.pdf [https://perma.cc/B54U-CMAP]. An Illinois State Bar Association report, for example, describes local courthouses with “mold visibly growing on the ceilings” and courthouses with heating and air conditioning systems so ineffective that “some rooms . . . are almost as warm as a sauna and other rooms . . . are ridiculously cold all on the same day.” Id. at 20 & 20 n.45. For more examples, see generally infra Section I.B.Show More

Local courts like this one—including both general-jurisdiction trial-level courts and limited-jurisdiction hyperlocal courts like municipal and justice courts2 2.The diversity of local courts makes defining the category an important part of the analysis. For a more detailed explanation, see infra Part I.Show More—are overwhelmingly likely to have both the first and final words in any dispute within the justice system. Litigants file tens of millions of cases in local courts each year, outnumbering cases filed in federal court by a factor of over two hundred.3 3.See infra Part I.Show More Few litigants who receive local-court judgments appeal the matter further.

The justice we possess is thus largely the justice created by local courts. It is a diverse justice. Because local courts are influenced by all levels of government—federal, state, and local—they exhibit a radical diversity—not just between states but within them, and not just in the way that they operate but in their organizing structures. We tolerate, even celebrate, that diversity. We believe it encourages the “creative ferment of experimentation.”4 4.See Paul M. Bator, The State Courts and Federal Constitutional Litigation, 22 Wm. & Mary L. Rev. 605, 634 (1981) (“Do we not derive enormous benefits from having a variety of institutional ‘sets’ within which issues of federal constitutional law are addressed? The creative ferment of experimentation which federalism encourages is not irrelevant to the task of constitutional adjudication.”).Show More And sometimes, local courts vindicate this promise. At their best, local courts can be laboratories for innovative approaches to justice tailored to the communities they serve.5 5.For examples of how local courts have piloted programs meant to improve justice for individuals, communities, and businesses, see generally infra Section I.A.Show More

But this innovation, when it exists, is matched—at times overmatched—by the injustice that takes place there. Chronic underfunding and a lack of oversight cause problems that run deep. Some local courts are full of violations of federal law, including overlong waits for trial, a dearth of interpreters, ineffective and non-existent public defense programs, inaccessible facilities, and fines and debtor’s prisons that have devastating impacts on indigent defendants. These problems are not only deep; they are vast: most states have some identified problem with their local courts.6 6.See infra Section I.B.Show More

Despite these massive stakes, despite the place of local courts at the heart of the justice system, and despite even the compelling human stories that unfold in these courts, we know very little about them.7 7.See Annie Decker, A Theory of Local Common Law, 35 Cardozo L. Rev. 1939, 1943–44 (2014) (noting a lack of empirical studies about local courts); Ethan J. Leib, Localist Statutory Interpretation, 161 U. Pa. L. Rev. 897, 898–99 (2013) (“[L]egal scholars have almost universally ignored the law in local courts, favoring the study of federal courts and state appellate courts.”); Stephen C. Yeazell, Courting Ignorance: Why We Know So Little About Our Most Important Courts, 143 Daedalus 129, 129 (2014) (“[A]s we drown in data about everything else under the sun, we know remarkably little about how [local] courts actually work.”).Show More Their opinions are often unpublished and their proceedings are rarely transcribed.8 8.See infra Subsection II.A.2.Show More They are completely absent from the core law school curriculum.9 9.Others have offered explanations for this erasure. Annie Decker has speculated that the number and diversity of local courts overwhelm us with “anticipatory fatigue.” See Decker, supra note 7, at 1943. Ethan Leib has suggested that we ignore local courts because their opinions are unpublished and inaccessible. See Leib, supra note 7, at 907–08 (“Admittedly, it is not easy to ascertain what is occurring in these local courtrooms with a high level of confidence. Because local courts are much less likely to publish their decisions than state courts higher in the judicial hierarchy, a scholar would need to sit in local courtrooms for long periods of time and read reams of motion papers to discover with any degree of reliability what goes on in these halls of justice.”). As I describe later, these explanations are likely correct, but incomplete.Though local courts are largely absent from doctrinal classes, they are not absent from clinical work, which often takes place within local courts.Show More

This Article begins to remedy that absence by providing a structural account of local courts that situates them as distinct institutions within the justice system. It links the problems experienced by these courts with the state and federal laws that influence local-court function and administration. On the state side, the Article provides new accounts of the administrative and substantive relationships between local courts and state government. It describes how states create and shape the basic contours of local courts through policies that determine how local courts are funded and how local judges are selected.10 10.See infra Subsection II.A.1.Show More It uses hand-coded, raw survey data from the National Center for State Courts (NCSC) to illustrate the kinds of formal and informal interactions that exist between local courts and state judicial administrative offices. Although states differ, legal and administrative distance between state and local institutions joined with the rarity of appeals from local-court judgments and the scarcity of other quality control mechanisms makes local courts meaningfully independent from their state systems.11 11.See infra Subsection II.A.2.Show More

Federal law compounds this independence by sheltering local courts from external scrutiny. Judicial federalism doctrines—specifically preclusion, abstention, and habeas corpus—require federal courts to defer to the legal and factual findings of state courts. In practice, these doctrines require deference to local courts.12 12.See infra Subsection II.B.1.Show More As a consequence, federal courts provide surprisingly little oversight of the workings of local courts. And federal enforcement doctrines like standing and immunity protect local courts from legal reform efforts.13 13.See infra Subsection II.B.2.Show More

This structural analysis provides insights not only into local-court functioning but into scholarship on federalism, judicial federalism, and our justice system broadly. Theories of judicial federalism that promote state courts as useful administrators of federal law, invoked by both courts and scholars that draw from the general values of federalism, rely on the myth that state courts are monolithic institutions. In fact, the reality of state courts—including their diversity, relative obscurity, and independence from state institutions—frustrates these values and counsels against deference to local-court decision making.14 14.See infra Section III.A.Show More

In addition, theories of judicial federalism miss what I believe is the principal conceptual function of local courts: providing us with an understanding of the justice we have, not the justice we aspire to or the justice required by law. If we look closely enough, we can see that where local courts fail, they fail in part because we allow them to fail. We underfund local courts; we tolerate state systems that do not supervise them; and we have declined to create a federal bureaucracy to monitor them. Local courts—and not federal courts—are the starting point from which we should define and evaluate our system of justice.15 15.See infra Section III.B.Show More

This analysis requires some methodological novelty. To build a structural argument, the Article weaves together state and local laws, state judicial administration, federal courts doctrines, and federal enforcement laws. What might appear to be a motley collection of legal authorities actually underscores one reason why studying local courts has been such a challenge: no single discipline offers an analytic framework sufficient to capture the reality of local courts. Four areas deeply informed by these courts—federal courts, civil procedure, state government, and local government—all ignore them. The field of federal courts, for one, addresses jurisdictional questions that directly affect the reach of local courts. And yet to the extent federal courts scholarship acknowledges local courts at all, it describes them in generalities and fails to engage with, or even inquire into, their structural and experiential realities.16 16.By their own admission, federal courts scholars have treated local courts as “the neglected stepchild of the field.” Michael E. Solimine & James L. Walker, Respecting State Courts: The Inevitability of Judicial Federalism 141 (1999). As an example, consider the question of “parity,” a foundational concept in federal courts which refers to the relative competence of state and federal courts to adjudicate federal claims. Though parity directly bears upon the abilities of local courts, parity literature has never considered the diversity of local court ability, the particular challenges that local courts face, or the complex relationships these courts have with the rest of the state system. See, e.g., Bator, supra note 4, at 622–23 (calling state and federal courts “partners” in the endeavor to enforce federal constitutional principles and elaborating on federal-court competence); Burt Neuborne, The Myth of Parity, 90 Harv. L. Rev. 1105, 1105–06 (1977) (arguing that a belief in parity is “at best, a dangerous myth” and that jurisdictional decisions are not outcome-neutral).Show More Civil procedure scholarship focuses “primarily, if not exclusively, on federal litigation and the Federal Rules of Civil Procedure.”17 17.See Barbara A. Babcock, Toni M. Massaro & Norman W. Spaulding, The Ideal and the Actual in Procedural Due Process, in A Critical Guide to Civil Procedure (Brooke Coleman et al. eds., forthcoming 2020) (manuscript at 2) (on file with author); see also id. at 1–2 (“[T]he study of how due process works outside the federal courts in the spaces where the vast majority of ordinary people encounter the administration of justice generally does not resurface. . . . This is most unfortunate. . . . Students are increasingly taught ideal procedural justice . . . . Meanwhile, what most Americans experience is nothing like what the models of either administrative or judicial process describe, nothing like what we debate in studying procedure in the federal courts, whatever its defects.”).Show More Scholarship on state law, including my own, has ignored local courts in favor of the state legislative and executive branches.18 18.See Jessica Bulman-Pozen, Partisan Federalism, 127 Harv. L. Rev. 1077 (2014) (situating state identity and partisanship within the larger system of federalism); Miriam Seifter, Further from the People? The Puzzle of State Administration, 93 N.Y.U. L. Rev. 107 (2018) (exploring the lack of transparency in state bureaucracy and its consequences); Miriam Seifter, Gubernatorial Administration, 131 Harv. L. Rev. 483, 484 (2017) (providing a history and functional analysis of gubernatorial power); Justin Weinstein-Tull, State Bureaucratic Undermining, 85 U. Chi. L. Rev. 1083 (2018) (describing the ways in which conflict between and among the state legislative and executive branches can undermine federal rights).Scholarship on state courts and the benefits of state-court constitutionalism—“new judicial federalism” scholarship—has also ignored local courts. See, e.g., Lawrence Friedman, The Constitutional Value of Dialogue and the New Judicial Federalism, 28 Hastings Const. L.Q. 93, 94–98 (2000) (arguing for state supreme courts to embrace a new role in constitutional interpretation without mentioning local courts).Show More Even local government literature, the usual stomping grounds for vital but non-national issues otherwise overlooked by the academy, has ignored local courts.19 19.Local government scholarship has “for too long failed to see local judges as the complex players they are in municipal governments.” Ethan J. Leib, Local Judges and Local Government, 18 N.Y.U. J. Legis. & Pub. Pol’y 707, 739 (2015); see also id. at 737 (“[L]ocal government scholars who spend time thinking about optimizing the relationships among different levels of government—federal, state, local—have much more work to do to situate local courts within this matrix.”).Instead, local government theory has largely focused on the balance of policymaking authority between state and local governments, see, e.g., David J. Barron, Reclaiming Home Rule, 116 Harv. L. Rev. 2255 (2003); Richard Briffault, Our Localism: Part I—The Structure of Local Government Law, 90 Colum. L. Rev. 1 (1990); Gerald E. Frug, The City as a Legal Concept, 93 Harv. L. Rev. 1057 (1980), the liminal legal space occupied by local governments, see, e.g., Richard Thompson Ford, The Boundaries of Race: Political Geography in Legal Analysis, 107 Harv. L. Rev. 1841 (1994); Richard C. Schragger, The Limits of Localism, 100 Mich. L. Rev. 371 (2001); Joan C. Williams, The Constitutional Vulnerability of American Local Government: The Politics of City Status in American Law, 1986 Wis. L. Rev. 83, land use, urban planning, and governance problems unique to local government, see, e.g., Michelle Wilde Anderson, The New Minimal Cities, 123 Yale L.J. 1118 (2014); Nestor M. Davidson, Localist Administrative Law, 126 Yale L.J. 564 (2017); David Schleicher, City Unplanning, 122 Yale L.J. 1670 (2013), and federal-state-local relationships in various policy areas, see, e.g., Roderick M. Hills, Jr., Dissecting the State: The Use of Federal Law to Free State and Local Officials from State Legislatures’ Control, 97 Mich. L. Rev. 1201 (1999); Cristina M. Rodríguez, The Significance of the Local in Immigration Regulation, 106 Mich. L. Rev. 567 (2008); Justin Weinstein-Tull, Election Law Federalism, 114 Mich. L. Rev. 747 (2016). This is not, of course, an exhaustive list of categories.Show More

The legal academy’s failure to account for local courts—with two narrow exceptions20 20.The first exception is misdemeanor criminal process. Scholars have unearthed fascinating (and horrifying) details of how criminal procedure works in the context of minor offenses tried in local courts. See, e.g., Malcolm M. Feeley, The Process is the Punishment: Handling Cases in a Lower Criminal Court (1992); Issa Kohler-Hausmann, Misdemeanorland: Criminal Courts and Social Control in an Age of Broken Windows Policing (2018) (describing the “procedural hassle” of criminal procedure in New York local courts); Alexandra Natapoff, Punishment Without Crime: How Our Massive Misdemeanor System Traps the Innocent and Makes America More Unequal (2018); Alexandra Natapoff, Misdemeanors, 85 S. Cal. L. Rev. 1313, 1315 (2012) [hereinafter Natapoff, Misdemeanors] (“Most U.S. convictions are misdemeanors, and they are generated in ways that baldly contradict the standard due process model of criminal adjudication.”). And a deep literature exists that probes the rise of pleas and the process surrounding them. See, e.g., Josh Bowers, Punishing the Innocent, 156 U. Pa. L. Rev. 1117 (2008); George Fisher, Plea Bargaining’s Triumph, 109 Yale L.J. 857 (2000); Thea Johnson, Fictional Pleas, 94 Ind. L.J. 855 (2019); Stephen J. Schulhofer, Plea Bargaining as Disaster, 101 Yale L.J. 1979 (1992).The second exception is the response to Michael Brown’s killing in Ferguson, Missouri. After Brown’s death, the U.S. Department of Justice issued a report that detailed the failures of the Ferguson municipal court, including that the court handled criminal charges “not with the primary goal of administering justice or protecting the rights of the accused, but of maximizing revenue.” See U.S. Dep’t of Justice, Civil Rights Div., Investigation of the Ferguson Police Department 42 (2015) [hereinafter DOJ Ferguson Report] https://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/03/04/fergu­son_police_department_report.pdf [https://perma.cc/26R9-AB4B]. Scholars have since done illuminating work on local-court reform using Ferguson as a case study. See, e.g., Beth A. Colgan, Lessons from Ferguson on Individual Defense Representation as a Tool of Systemic Reform, 58 Wm. & Mary L. Rev. 1171 (2017) (describing the many constitutional rights violated by Ferguson’s local-court system and the impact of individual defense counsel on reform efforts); Fred O. Smith, Jr., Abstention in the Time of Ferguson, 131 Harv. L. Rev. 2283 (2018) (arguing that the Younger abstention doctrine precludes meaningful oversight of local courts and governments).Show More—has essentially divorced legal theory from the most fundamental and common experiences of our justice system. As a consequence, the study of local courts is unexpectedly nascent.21 21.Although there is essentially no academic legal scholarship on local courts as courts, illuminating scholarship does exist on specific issues that take place in local courts, including problems relating to problem-solving and subject-matter courts. See, e.g., Richard C. Boldt, Problem-Solving Courts and Pragmatism, 73 Md. L. Rev. 1120 (2014) (considering how pragmatism informs the judicial process in problem-solving courts); Erin R. Collins, Status Courts, 105 Geo. L.J. 1481 (2017) (describing the promise and pitfalls of local courts that are tailored to certain types of defendants); D. James Greiner, Cassandra Wolos Pattanayak & Jonathan Hennessy, The Limits of Unbundled Legal Assistance: A Randomized Study in A Massachusetts District Court and Prospects for the Future, 126 Harv. L. Rev. 901 (2013) (empirically evaluating different kinds of legal services in Massachusetts district courts).But in the same way that we don’t consider the study of federal criminal law to satisfy our need to understand federal courts more broadly, neither does the study of specific legal issues that arise in local courts satisfy our need to understand local courts.Show More That status is perverse. Why should most litigants’ primary experiences with the legal system be academic afterthoughts?

Part I of this Article explains the high stakes—both practical and conceptual—associated with local courts. Part II links these problems with the structures of local courts by arguing that the state and federal systems do not provide significant oversight of these courts. Section II.A provides new accounts of the administrative and substantive relationships between local courts and their states. Section II.B describes how federal law shelters local courts from external scrutiny. Whereas Part II examines the effects of the state and federal systems on the internal workings of local courts, Part III does the opposite: it looks outward and reevaluates our thinking on judicial federalism in light of the diversity and problems of local courts.

I conclude by arguing that local courts should not be relegated to the status of quirky hybrid within the academy. I speculate about what a field of local courts would look like and suggest that treating local courts as a fundamental building block within the law would both solve a number of problems and create a promising set of questions for further study.

  1. * Associate Professor of Law, Arizona State University. I owe many thanks. First, to my fantastic research assistants: Samantha Burke, Lucas Hickman, Kelsey Merrick, Austin Marshall, and Jack Milligan. Second, to the judges and court administrators who told me stories and offered their ideas. Third, to the many readers whose generosity, thoughts, and suggestions I have not done justice: Michelle Anderson, Abbye Atkinson, Richard Briffault, Beth Colgan, Laura Coordes, Nestor Davidson, George Fisher, Deborah Hensler, Ethan Leib, Ron Levin, Kaipo Matsumura, Ben McJunkin, Jeannie Merino, Martha Minow, Michael Pollack, Dara Purvis, Trevor Reed, Michael Saks, Erin Scharff, Rich Schragger, Joshua Sellers, Michael Selmi, Bijal Shah, Jonathan Siegel, Shirin Sinnar, Fred Smith, Ji Seon Song, Norm Spaulding, David Super, Andrea Wang, participants of the Stanford/Harvard/Yale Junior Faculty Forum, Junior Faculty Federal Courts Workshop, the State and Local Government Law Works-in-Progress Workshop, the American Constitution Society Junior Scholars Public Law Workshop, the Grey Fellows Forum, and faculty workshops at Arizona State University and U.C. Irvine. And finally, to Jordan Walsh and the editors of the Virginia Law Review for their thorough and tireless work. ↑
  2. Courthouse architecture is a fascinating topic in its own right. See Judith Resnik & Dennis Curtis, Representing Justice: Invention, Controversy, and Rights in City-States and Democratic Courtrooms (2011); Norman W. Spaulding, The Enclosure of Justice: Courthouse Architecture, Due Process, and the Dead Metaphor of Trial, 24 Yale J.L. & Human. 311, 315 (2012) (“[T]he American concept of due process of law is itself intimately bound up with the location, design, and use of law’s administrative space.”). For recent images of local courts around the country, see American Courthouses: A Photo Archive by John Deacon, http://www.courthouses.co/ (last visited Apr. 12, 2020) [https://perma.cc/K2MQ-UYMN].Deteriorating physical conditions of local courthouses are not unique to Wilkinson County and go beyond “complaints about the color of the carpeting.” ISBA Special Comm. on Fair & Impartial Courts, Ill. State Bar Ass’n, Report on the Funding Crisis in the Illinois
    Courts 20 (2013) [hereinafter ISBA Report], https://www.isba.org/sites/default/files/­committees/Report%20on%20the%20Funding%20Crisis%20in%20the%20Illinois%20Courts.pdf [https://perma.cc/B54U-CMAP]. An Illinois State Bar Association report, for example, describes local courthouses with “mold visibly growing on the ceilings” and courthouses with heating and air conditioning systems so ineffective that “some rooms . . . are almost as warm as a sauna and other rooms . . . are ridiculously cold all on the same day.” Id. at 20 & 20 n.45. For more examples, see generally infra Section I.B. ↑
  3. The diversity of local courts makes defining the category an important part of the analysis. For a more detailed explanation, see infra Part I. ↑
  4. See infra Part I. ↑
  5. See Paul M. Bator, The State Courts and Federal Constitutional Litigation, 22 Wm. & Mary L. Rev. 605, 634 (1981) (“Do we not derive enormous benefits from having a variety of institutional ‘sets’ within which issues of federal constitutional law are addressed? The creative ferment of experimentation which federalism encourages is not irrelevant to the task of constitutional adjudication.”). ↑
  6. For examples of how local courts have piloted programs meant to improve justice for individuals, communities, and businesses, see generally infra Section I.A. ↑
  7. See infra Section I.B. ↑
  8. See Annie Decker, A Theory of Local Common Law, 35 Cardozo L. Rev. 1939, 1943–44 (2014) (noting a lack of empirical studies about local courts); Ethan J. Leib, Localist Statutory Interpretation, 161 U. Pa. L. Rev. 897, 898–99 (2013) (“[L]egal scholars have almost universally ignored the law in local courts, favoring the study of federal courts and state appellate courts.”); Stephen C. Yeazell, Courting Ignorance: Why We Know So Little About Our Most Important Courts, 143 Daedalus 129, 129 (2014) (“[A]s we drown in data about everything else under the sun, we know remarkably little about how [local] courts actually work.”). ↑
  9. See infra Subsection II.A.2. ↑
  10. Others have offered explanations for this erasure. Annie Decker has speculated that the number and diversity of local courts overwhelm us with “anticipatory fatigue.” See Decker, supra note 7, at 1943. Ethan Leib has suggested that we ignore local courts because their opinions are unpublished and inaccessible. See Leib, supra note 7, at 907–08 (“Admittedly, it is not easy to ascertain what is occurring in these local courtrooms with a high level of confidence. Because local courts are much less likely to publish their decisions than state courts higher in the judicial hierarchy, a scholar would need to sit in local courtrooms for long periods of time and read reams of motion papers to discover with any degree of reliability what goes on in these halls of justice.”). As I describe later, these explanations are likely correct, but incomplete.Though local courts are largely absent from doctrinal classes, they are not absent from clinical work, which often takes place within local courts. ↑
  11. See infra Subsection II.A.1. ↑
  12. See infra Subsection II.A.2. ↑
  13. See infra Subsection II.B.1. ↑
  14. See infra Subsection II.B.2. ↑
  15. See infra Section III.A. ↑
  16. See infra Section III.B. ↑
  17. By their own admission, federal courts scholars have treated local courts as “the neglected stepchild of the field.” Michael E. Solimine & James L. Walker, Respecting State Courts: The Inevitability of Judicial Federalism 141 (1999). As an example, consider the question of “parity,” a foundational concept in federal courts which refers to the relative competence of state and federal courts to adjudicate federal claims. Though parity directly bears upon the abilities of local courts, parity literature has never considered the diversity of local court ability, the particular challenges that local courts face, or the complex relationships these courts have with the rest of the state system. See, e.g., Bator, supra note 4, at 622–23 (calling state and federal courts “partners” in the endeavor to enforce federal constitutional principles and elaborating on federal-court competence); Burt Neuborne, The Myth of Parity, 90 Harv. L. Rev. 1105, 1105–06 (1977) (arguing that a belief in parity is “at best, a dangerous myth” and that jurisdictional decisions are not outcome-neutral). ↑
  18. See Barbara A. Babcock, Toni M. Massaro & Norman W. Spaulding, The Ideal and the Actual in Procedural Due Process, in A Critical Guide to Civil Procedure (Brooke Coleman et al. eds., forthcoming 2020) (manuscript at 2) (on file with author); see also id. at 1–2 (“[T]he study of how due process works outside the federal courts in the spaces where the vast majority of ordinary people encounter the administration of justice generally does not resurface. . . . This is most unfortunate. . . . Students are increasingly taught ideal procedural justice . . . . Meanwhile, what most Americans experience is nothing like what the models of either administrative or judicial process describe, nothing like what we debate in studying procedure in the federal courts, whatever its defects.”). ↑
  19. See Jessica Bulman-Pozen, Partisan Federalism, 127 Harv. L. Rev. 1077 (2014) (situating state identity and partisanship within the larger system of federalism); Miriam Seifter, Further from the People? The Puzzle of State Administration, 93 N.Y.U. L. Rev. 107 (2018) (exploring the lack of transparency in state bureaucracy and its consequences); Miriam Seifter, Gubernatorial Administration, 131 Harv. L. Rev. 483, 484 (2017) (providing a history and functional analysis of gubernatorial power); Justin Weinstein-Tull, State Bureaucratic Undermining, 85 U. Chi. L. Rev. 1083 (2018) (describing the ways in which conflict between and among the state legislative and executive branches can undermine federal rights).Scholarship on state courts and the benefits of state-court constitutionalism—“new judicial federalism” scholarship—has also ignored local courts. See, e.g., Lawrence Friedman, The Constitutional Value of Dialogue and the New Judicial Federalism, 28 Hastings Const. L.Q. 93, 94–98 (2000) (arguing for state supreme courts to embrace a new role in constitutional interpretation without mentioning local courts). ↑
  20. Local government scholarship has “for too long failed to see local judges as the complex players they are in municipal governments.” Ethan J. Leib, Local Judges and Local Government, 18 N.Y.U. J. Legis. & Pub. Pol’y 707, 739 (2015); see also id. at 737 (“[L]ocal government scholars who spend time thinking about optimizing the relationships among different levels of government—federal, state, local—have much more work to do to situate local courts within this matrix.”).Instead, local government theory has largely focused on the balance of policymaking authority between state and local governments, see, e.g., David J. Barron, Reclaiming Home Rule, 116 Harv. L. Rev. 2255 (2003); Richard Briffault, Our Localism: Part I—The Structure of Local Government Law, 90 Colum. L. Rev. 1 (1990); Gerald E. Frug, The City as a Legal Concept, 93 Harv. L. Rev. 1057 (1980), the liminal legal space occupied by local governments, see, e.g., Richard Thompson Ford, The Boundaries of Race: Political Geography in Legal Analysis, 107 Harv. L. Rev. 1841 (1994); Richard C. Schragger, The Limits of Localism, 100 Mich. L. Rev. 371 (2001); Joan C. Williams, The Constitutional Vulnerability of American Local Government: The Politics of City Status in American Law, 1986 Wis. L. Rev. 83, land use, urban planning, and governance problems unique to local government, see, e.g., Michelle Wilde Anderson, The New Minimal Cities, 123 Yale L.J. 1118 (2014); Nestor M. Davidson, Localist Administrative Law, 126 Yale L.J. 564 (2017); David Schleicher, City Unplanning, 122 Yale L.J. 1670 (2013), and federal-state-local relationships in various policy areas, see, e.g., Roderick M. Hills, Jr., Dissecting the State: The Use of Federal Law to Free State and Local Officials from State Legislatures’ Control, 97 Mich. L. Rev. 1201 (1999); Cristina M. Rodríguez, The Significance of the Local in Immigration Regulation, 106 Mich. L. Rev. 567 (2008); Justin Weinstein-Tull, Election Law Federalism, 114 Mich. L. Rev. 747 (2016). This is not, of course, an exhaustive list of categories. ↑
  21. The first exception is misdemeanor criminal process. Scholars have unearthed fascinating (and horrifying) details of how criminal procedure works in the context of minor offenses tried in local courts. See, e.g., Malcolm M. Feeley, The Process is the Punishment: Handling Cases in a Lower Criminal Court (1992); Issa Kohler-Hausmann, Misdemeanorland: Criminal Courts and Social Control in an Age of Broken Windows Policing (2018) (describing the “procedural hassle” of criminal procedure in New York local courts); Alexandra Natapoff, Punishment Without Crime: How Our Massive Misdemeanor System Traps the Innocent and Makes America More Unequal (2018); Alexandra Natapoff, Misdemeanors, 85 S. Cal. L. Rev. 1313, 1315 (2012) [hereinafter Natapoff, Misdemeanors] (“Most U.S. convictions are misdemeanors, and they are generated in ways that baldly contradict the standard due process model of criminal adjudication.”). And a deep literature exists that probes the rise of pleas and the process surrounding them. See, e.g., Josh Bowers, Punishing the Innocent, 156 U. Pa. L. Rev. 1117 (2008); George Fisher, Plea Bargaining’s Triumph, 109 Yale L.J. 857 (2000); Thea Johnson, Fictional Pleas, 94 Ind. L.J. 855 (2019); Stephen J. Schulhofer, Plea Bargaining as Disaster, 101 Yale L.J. 1979 (1992).The second exception is the response to Michael Brown’s killing in Ferguson, Missouri. After Brown’s death, the U.S. Department of Justice issued a report that detailed the failures of the Ferguson municipal court, including that the court handled criminal charges “not with the primary goal of administering justice or protecting the rights of the accused, but of maximizing revenue.” See U.S. Dep’t of Justice, Civil Rights Div., Investigation of
    the Ferguson Police Department 42 (2015) [hereinafter DOJ Ferguson Report] https://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/03/04/fergu­son_police_department_report.pdf [https://perma.cc/26R9-AB4B]. Scholars have since done illuminating work on local-court reform using Ferguson as a case study. See, e.g., Beth A. Colgan, Lessons from Ferguson on Individual Defense Representation as a Tool of Systemic Reform, 58 Wm. & Mary L. Rev. 1171 (2017) (describing the many constitutional rights violated by Ferguson’s local-court system and the impact of individual defense counsel on reform efforts); Fred O. Smith, Jr., Abstention in the Time of Ferguson, 131 Harv. L. Rev. 2283 (2018) (arguing that the Younger abstention doctrine precludes meaningful oversight of local courts and governments). ↑
  22. Although there is essentially no academic legal scholarship on local courts as courts, illuminating scholarship does exist on specific issues that take place in local courts, including problems relating to problem-solving and subject-matter courts. See, e.g., Richard C. Boldt, Problem-Solving Courts and Pragmatism, 73 Md. L. Rev. 1120 (2014) (considering how pragmatism informs the judicial process in problem-solving courts); Erin R. Collins, Status Courts, 105 Geo. L.J. 1481 (2017) (describing the promise and pitfalls of local courts that are tailored to certain types of defendants); D. James Greiner, Cassandra Wolos Pattanayak & Jonathan Hennessy, The Limits of Unbundled Legal Assistance: A Randomized Study in A Massachusetts District Court and Prospects for the Future, 126 Harv. L. Rev. 901 (2013) (empirically evaluating different kinds of legal services in Massachusetts district courts).But in the same way that we don’t consider the study of federal criminal law to satisfy our need to understand federal courts more broadly, neither does the study of specific legal issues that arise in local courts satisfy our need to understand local courts. ↑

Designing Business Forms to Pursue Social Goals

The long-standing debate about the purpose and role of business firms has recently regained momentum. Business firms face growing pressure to pursue social goals and benefit corporation statutes proliferate across many U.S. states. This trend is largely based on the idea that firms increase long-term shareholder value when they contribute (or appear to contribute) to society. Contrary to this trend, this Article argues that the pressing issue is whether policies to create social impact actually generate value for third-party beneficiaries—rather than for shareholders. Because it is difficult to measure social impact with precision, the design of legal forms for firms that pursue social missions should incorporate organizational structures that generate both the incentives and competence to pursue such missions effectively. Specifically, firms that have a commitment to transacting with different types of disadvantaged groups demonstrate these attributes and should thus serve as the basis for designing legal forms.

While firms with such a commitment may be created using a variety of control and contractual mechanisms, the related transaction costs tend to be very high. This Article develops a social enterprise legal form that draws on the legal regime for community development financial institutions (CDFIs) and European legal forms for work-integration social enterprises (WISEs). This form would certify to investors, consumers, and governments that designated firms have a commitment as social enterprises. By obviating the need for costly social impact measurement, this form would facilitate the provision of subsidy-donations to social enterprises from multiple groups, particularly investors (through below-market investment) and consumers (via premiums over market prices). Thus, this social enterprise form would be to altruistic investors and consumers what the nonprofit form is to donors.

Moreover, the proposal could facilitate the flow of investments by foundations in social enterprises (known as program-related investments, “PRIs”) because it would help foundations verify the social impact of their investees. In addition, by giving subsidy-providers greater assurance that social enterprises pursue social missions effectively, the proposed legal form could facilitate public markets for social enterprises.

Introduction

In recent years, there have been efforts to encourage firms to pursue social goals. In a striking statement to public corporations, Larry Fink, Blackrock’s CEO, wrote: “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”1 1.Letter from Larry Fink, Chairman & Chief Exec. Officer, Blackrock, to CEOs (2018), https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter [https://­perma.cc/7QRQ-9DG6]. For a similar statement by Martin Lipton, the renowned legal advisor for public corporations, see Martin Lipton et al., The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors To Achieve Sustainable Long-Term Investment and Growth, Harv. L. Sch. F. on Corp. Governance (Jan. 11, 2017), https://corpgov.law.harvard.edu/2017/01/11/corporate-governance-the-new-para­digm/ [https://perma.cc/B5AJ-EWNW].Show More The imperative that firms pursue social goals, however, is very vague. What range of permissible non-pecuniary goals should companies be encouraged to pursue?2 2.See generally Oliver Hart & Luigi Zingales, Companies Should Maximize Shareholder Welfare Not Market Value, 2 J.L. Fin. & Acct. 247 (2017) (arguing that company and asset managers should pursue policies consistent with the non-pecuniary preferences of their investors).Show More This question reflects a much re-hashed debate regarding the role and purpose of corporations. Many studies view this topic as a matter of corporate governance. That is, the key question is whether policies that seek to create social impact—often referred to as “CSR” (for corporate social responsibility)—maximize shareholder value in the long term. If the answer is yes, then it is a win-win situation for all because such policies are assumed to benefit society.

This Article takes a different approach by arguing that the pressing question should be: Does the pursuit of social missions by for-profit organizations actually benefit the intended beneficiaries? While the literature is not conclusive,3 3.Compare Ronald W. Masulis & Syed Walid Reza, Agency Problems of Corporate Philanthropy, 28 Rev. Fin. Stud. 592, 619–21 (2015) (claiming that corporate donations advance CEO interests and reduce firm value), with Allen Ferrell, Hao Liang & Luc Renneboog, Socially Responsible Firms, 122 J. Fin. Econ. 585, 585–91, 596–605 (2016) (arguing that well-governed firms are more engaged in CSR, and there is a positive association between CSR and shareholder value).Show More it is easy to see how a reputation for being socially responsible can help companies sell more products, attract investments, or even get more lenient treatment from regulators. However, just having a good reputation does not mean that CSR policies achieve their putative purpose of helping stakeholders and society at large. Without a mechanism for ensuring that CSR actually benefits the stakeholders, companies can easily use it as a means of “greenwashing.”4 4.“Greenwashing occurs when a corporation increases its sales or boosts its brand image through environmental rhetoric or advertising, but in reality does not make good on these environmental claims.” Miriam A. Cherry, The Law and Economics of Corporate Social Responsibility and Greenwashing, 14 U.C. Davis Bus. L.J. 281, 282 (2013).Show More Greenwashing may be particularly conducive to shareholder value because it promotes a strong reputation and higher sales without actually doing anything substantial for society.5 5.This arguably explains why well-governed firms that are more accountable to their shareholders tend to engage in value-enhancing CSR. See generallyFerrell, Liang & Renneboog, supra note 3. For a similar argument in the context of regulation, see Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 3–4 (2016) (arguing that regulation designed to align managers’ and investors’ interests does not necessarily help address negative externalities).Show More But—while false signals of doing good may increase shareholder value—those who support companies for their good deeds would presumably be disappointed were the truth to come to light.

The problem is that it is extremely difficult to verify companies’ social impact. Existing measures of social impact tend to be vague, include metrics that are difficult to quantify, and even mix shareholder protection metrics with environmental or societal ones.6 6.This is most obviously manifested in the ESG metrics because they include both (i) governance metrics, which are supposed to increase accountability to shareholders and (ii) social and environmental metrics, which are supposed to measure firms’ contributions to social and environmental objectives.Show More But if measurement is rarely available, how do we know that firms are pursuing social goals effectively?

The legal approach to addressing these questions has been to introduce legal hybrid forms—in particular, the benefit corporation.7 7.See infra Part II.Show More These forms are supposed to communicate to investors, consumers, workers, and society at large that firms’ activities benefit society. To date, as many as thirty-six states, including Delaware, have adopted one or more such legal forms.8 8.B Lab, State by State Status of Legislation, Benefit Corp., http://benefitcorp.net/policy­makers/state-by-state-status? [https://perma.cc/X524-35UE] (last visited Mar. 18, 2020).Show More However, existing legal forms fail to clarify the actual impact of companies’ social goals.9 9.See, e.g., John E. Tyler III, Evan Absher, Kathleen Garman & Anthony Luppino, Purposes, Priorities and Accountability Under Social Business Structures: Resolving Ambiguities and Enhancing Adoption, 19 Advances Entrepreneurship Firm Emergence & Growth 39, 39 (2017) (arguing that “social business models do not meaningfully prioritize or impose accountability to ‘social good’ over other purposes”).Show More Just like CSR, these forms could portray a misleading picture of companies’ social contributions. Many of the companies that adopt these legal forms have little or no discernible social impact.10 10.See Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, 2017 Colum. Bus. L. Rev. 92, 99 (discussing Laureate University, a for-profit network of universities incorporated as a benefit corporation but that uses aggressive promotional tactics and has low graduation and loan repayment rates); see also Michael B. Dorff, James Hicks & Steven Davidoff Solomon, The Future or Fancy? An Empirical Study of Public Benefit Corporations 46 (Eur. Corp. Governance Inst., Working Paper No. 495, 2020), https://papers.ssrn.com­/sol3/papers.cfm?abstract_id=3433772 [https://perma.cc/D9R8-VZWC]. Dorff et al. list standard firms, such as Ripple Foods, as having incorporated as benefit corporations, even though these firms do not have any clear social impact other than producing goods (such as dairy-free milk) that appeal to certain consumers.Show More And companies that appear to be highly successful in pursuing social missions already had such impact before they adopted the legal forms.11 11.Two such examples include the Greyston Bakery and Patagonia. See Eldar, supra note 10, at 189 n.270.Show More

Why have these forms seemingly failed to generate greater social impact? In this Article, I claim that they suffer from the same underlying problem as CSR policies. These forms are simply not structured in a way that makes companies more likely to pursue social goals effectively. Therefore, the legal forms cannot serve as useful signals to investors or consumers that the firms benefit society in the ways they purport to.

An effective legal form must meet two conditions. First, the form must give firms incentives to pursue social missions effectively. At the very least, the goal of maximizing shareholders’ profits should not interfere with the firm’s social mission. Ideally, the firm should have a financial stake in the accomplishment of the social mission. Second, the firm should have the competence to pursue such missions. Competence is particularly important because social goals, such as unemployment or access to capital, tend to be complex. Accomplishing complex social goals requires the firm to tailor its social programs to the specific attributes and needs of the beneficiaries.

The issues of incentives and competence are very similar to standard issues in corporate governance. Broadly stated, the main goal of corporate governance policy is to ensure that managers have both (i) the incentives to maximize shareholder value and (ii) the competence to make decisions on behalf of the corporation.12 12.See Zohar Goshen & Richard Squire, Principal Costs: A New Theory for Corporate Law and Governance, 117 Colum. L. Rev. 767, 784 (2017) (identifying conflict costs and competence costs as the two main sources of costs that corporate governance is designed to address).Show More What complicates things when it comes to social responsibility is that a firm that purports to pursue CSR not only makes profits on behalf of the investors, but it also serves as a conduit for a subsidy or a donation. As I explain elsewhere, these subsidies or donations need not be direct transfers from the government or donors. In fact, they are usually latent in the sense that they reflect premium prices paid by consumers or below-market returns from investors.13 13.Eldar, supra note 10, at 104–05.Show More

For policy makers, the main design issue is how to assure those who provide subsidy-donations that they will be used effectively. Thus, the principal goal of this Article is to develop a legal form with key structural elements that give managers the incentives and competence to accomplish this. This form can signal to stakeholders that firms professing to promote social impact actually do what they claim.

The policy I propose is modeled on the structural elements found in social enterprises that transact with their beneficiaries (e.g., as consumers or workers), which I have addressed in previous work.14 14.See id.; see also Ofer Eldar, The Organization of Social Enterprises: Transacting Versus Giving 10–15 (July 27, 2018) (unpublished paper), https://papers.ssrn.com/sol3/papers.­cfm?abstract_id=3217663 [https://perma.cc/S36D-3LWP].Show More The transactional relationship with its beneficiaries gives the firm a stake in helping them develop, and also enables the firm to observe beneficiaries’ abilities and needs. Thus, such firms have both the incentives and competence to serve certain social goals. The proposal builds on the regulatory regime for community development financial institutions (CDFIs), which certifies financial institutions as firms that serve low-income populations,15 15.The CDFI regime is currently limited to low-income borrowers, but it could be extended to a wider class of beneficiaries, and extended beyond the U.S.Show More and combines this regime with certain elements found in benefit corporations.16 16.Specifically, as in benefit corporations, a qualified majority voting is required to change the mission of the firm. See infra text accompanying note 111.Show More

In essence, the proposal is to introduce a new social enterprise (SE) legal form. Firms organized under the SE legal form would be required to obtain a government certification as a “Social Enterprise” if they commit, in their charters, to transacting with one or more carefully defined classes of beneficiaries. These beneficiaries may include, among others, workers, borrowers, and consumers. Beneficiaries will be divided into different classes in accordance with certain criteria of need (e.g., level of income). To maintain the certification, firms must commit to having a minimum percentage of their business associated with beneficiary transactions. Whereas current benefit corporation laws permit companies to choose a third-party standard that measures their social purpose,17 17.The MBCL provides criteria for third-party standards, but companies have discretion to select how their performance will be measured. See infra Part II.Show More my proposed reform would require companies to adhere to one federal standard defined by a single federal certifier.

The main goal of this proposed policy is to facilitate the flow of subsidized capital and income to social enterprises. This legal form is necessary to attract subsidies from dispersed subsidy-providers, such as investors and consumers. Currently, investors and consumers mainly rely on costly contractual and ownership mechanisms to ensure that relevant firms transact with their beneficiaries. Under the proposed system, investors and consumers would have notice that the firm transacts with beneficiaries before they purchase shares or products. In this respect, the proposed law would be to altruistic investors and consumers essentially what the nonprofit form is to donors.18 18.The nonprofit form assures donors that the managers of donative organizations have limited incentives to expropriate the subsidy-donations; hence, they are more likely to distribute donations to the intended beneficiaries. Henry B. Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 838–39 (1980). Similarly, the proposed legal form would assure investors and consumers that the firm has incentives to use subsidies effectively.Show More Thus, the proposal is likely to unlock much-needed capital to scale social enterprises and increase social impact.

The ability of the SE legal form to source subsidies from a wider range of subsidy-providers could serve two additional complementary objectives. First, it could help facilitate the process for allocating subsidized investments (known as program-related investments or “PRIs”) from foundations. While most policy initiatives seek to attract institutional shareholder investment to channel capital for social goals, the best candidates for investing in social impact are foundations. The reason is that they have vast amounts of capital that they are supposed to employ to further philanthropic goals.19 19.See, e.g., Matt Onek, Philanthropic Pioneers: Foundations and the Rise of Impact Investing, Stan. Soc. Innovation Rev. (Jan. 17, 2017) https://ssir.org/articles/entry/­philanthropic_pioneers_foundations_and_the_rise_of_impact_investing# [https://perma.cc/­MJ7A-52Q8].Show More Paradoxically, foundations often resist making PRIs in for-profit social enterprises because such investments could expose them to tax penalties if they cannot verify the social mission of their investees. Currently, such verification is cumbersome and subject to legal uncertainty. Thus, making certified firms eligible for PRIs would facilitate the process for allocating such investments.

Second, more ambitiously, the proposal has the potential to meet a long-awaited goal of social entrepreneurs: facilitating their access to capital markets. The inability of social enterprises to tap into capital markets substantially burdens their ability to grow and increase their social impact. Attempts to establish social exchanges for firms that combine profit and missions have largely been futile, primarily due to the difficulties of measuring social impact. A new legal form could help by providing adequate assurance to the investors who are expected to subsidize such impact.

One objection to this proposal might be that a legal hybrid form based solely on firms’ transactional relationships with their beneficiaries is overly reductive or too narrow. Should a legal hybrid form not capture the universe of social missions, such as the protection of the environment, diversity, and human rights? These objectives are indeed laudable, but it does not follow that legal forms can adequately address them. In the absence of credible certification mechanisms and clear metrics of social impact, legal forms for organizations with broad social purposes are not likely to signal that these firms pursue social missions effectively. Furthermore, the class of organizations that transact with disadvantaged persons is large and highly consequential.20 20.For example, they range from microfinance institutions to firms that provide eyeglasses in developing countries.Show More Concentrating on these firms could transform legal hybrid forms from a marginal phenomenon to a remarkable vehicle for promoting development.

This Article proceeds as follows: Part I describes how legal hybrid forms are supposed to serve as a commitment device to potential subsidy providers and explains why a new form is necessary to facilitate the formation of social enterprises. Part II critically evaluates the principal existing legal forms for companies with a social purpose and explains why they fail to serve as adequate commitment devices. Part III discusses the key elements of the CDFI regime and why other certification mechanisms do not work as well. Part IV proposes a design for a new legal form for social enterprises and discusses its principal elements in detail. Part V discusses the design of possible government subsidies for the proposed legal hybrid form.

  1. * Duke University School of Law; Duke Innovation and Entrepreneurship Initiative. I thank Richard Brooks, Jamie Boyle, John Coyle, Elisabeth De Fontenay, Brian Galle, Henry Hansmann, Yair Listokin, Richard Schmalbeck, Steven Schwarcz, Michael Simkovic, Emily Strauss, Rory Van Loo, Andrew Verstein, and participants in seminars at Duke University School of Law and Boston University School of Law for helpful comments and suggestions. I am also grateful to Heather Cron, Zach Lankford, Renuka Medury, Kelsey Moore, Catherine Prater, and Hadar Tanne for excellent research assistance. Email: eldar@law.duke.edu. ↑
  2. Letter from Larry Fink, Chairman & Chief Exec. Officer, Blackrock, to CEOs (2018), https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter [https://­perma.cc/7QRQ-9DG6]. For a similar statement by Martin Lipton, the renowned legal advisor for public corporations, see Martin Lipton et al., The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors To Achieve Sustainable Long-Term Investment and Growth, Harv. L. Sch. F. on Corp. Governance (Jan. 11, 2017), https://corpgov.law.harvard.edu/2017/01/11/corporate-governance-the-new-para­digm/ [https://perma.cc/B5AJ-EWNW]. ↑
  3. See generally Oliver Hart & Luigi Zingales, Companies Should Maximize Shareholder Welfare Not Market Value, 2 J.L. Fin. & Acct. 247 (2017) (arguing that company and asset managers should pursue policies consistent with the non-pecuniary preferences of their investors). ↑
  4. Compare Ronald W. Masulis & Syed Walid Reza, Agency Problems of Corporate Philanthropy, 28 Rev. Fin. Stud. 592, 619–21 (2015) (claiming that corporate donations advance CEO interests and reduce firm value), with Allen Ferrell, Hao Liang & Luc Renneboog, Socially Responsible Firms, 122 J. Fin. Econ. 585, 585–91, 596–605 (2016) (arguing that well-governed firms are more engaged in CSR, and there is a positive association between CSR and shareholder value). ↑
  5. “Greenwashing occurs when a corporation increases its sales or boosts its brand image through environmental rhetoric or advertising, but in reality does not make good on these environmental claims.” Miriam A. Cherry, The Law and Economics of Corporate Social Responsibility and Greenwashing, 14 U.C. Davis Bus. L.J. 281, 282 (2013). ↑
  6. This arguably explains why well-governed firms that are more accountable to their shareholders tend to engage in value-enhancing CSR. See generally Ferrell, Liang & Renneboog, supra note 3. For a similar argument in the context of regulation, see Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 3–4 (2016) (arguing that regulation designed to align managers’ and investors’ interests does not necessarily help address negative externalities). ↑
  7. This is most obviously manifested in the ESG metrics because they include both (i) governance metrics, which are supposed to increase accountability to shareholders and (ii) social and environmental metrics, which are supposed to measure firms’ contributions to social and environmental objectives. ↑
  8. See infra Part II. ↑
  9. B Lab, State by State Status of Legislation, Benefit Corp., http://benefitcorp.net/policy­makers/state-by-state-status? [https://perma.cc/X524-35UE] (last visited Mar. 18, 2020). ↑
  10. See, e.g., John E. Tyler III, Evan Absher, Kathleen Garman & Anthony Luppino, Purposes, Priorities and Accountability Under Social Business Structures: Resolving Ambiguities and Enhancing Adoption, 19 Advances Entrepreneurship Firm Emergence & Growth 39, 39 (2017) (arguing that “social business models do not meaningfully prioritize or impose accountability to ‘social good’ over other purposes”). ↑
  11. See Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, 2017 Colum. Bus. L. Rev. 92, 99 (discussing Laureate University, a for-profit network of universities incorporated as a benefit corporation but that uses aggressive promotional tactics and has low graduation and loan repayment rates); see also Michael B. Dorff, James Hicks & Steven Davidoff Solomon, The Future or Fancy? An Empirical Study of Public Benefit Corporations 46 (Eur. Corp. Governance Inst., Working Paper No. 495, 2020), https://papers.ssrn.com­/sol3/papers.cfm?abstract_id=3433772 [https://perma.cc/D9R8-VZWC]. Dorff et al. list standard firms, such as Ripple Foods, as having incorporated as benefit corporations, even though these firms do not have any clear social impact other than producing goods (such as dairy-free milk) that appeal to certain consumers. ↑
  12. Two such examples include the Greyston Bakery and Patagonia. See Eldar, supra note 10, at 189 n.270. ↑
  13. See Zohar Goshen & Richard Squire, Principal Costs: A New Theory for Corporate Law and Governance, 117 Colum. L. Rev. 767, 784 (2017) (identifying conflict costs and competence costs as the two main sources of costs that corporate governance is designed to address). ↑
  14. Eldar, supra note 10, at 104–05. ↑
  15. See id.; see also Ofer Eldar, The Organization of Social Enterprises: Transacting Versus Giving 10–15 (July 27, 2018) (unpublished paper), https://papers.ssrn.com/sol3/papers.­cfm?abstract_id=3217663 [https://perma.cc/S36D-3LWP]. ↑
  16. The CDFI regime is currently limited to low-income borrowers, but it could be extended to a wider class of beneficiaries, and extended beyond the U.S. ↑
  17. Specifically, as in benefit corporations, a qualified majority voting is required to change the mission of the firm. See infra text accompanying note 111. ↑
  18. The MBCL provides criteria for third-party standards, but companies have discretion to select how their performance will be measured. See infra Part II. ↑
  19. The nonprofit form assures donors that the managers of donative organizations have limited incentives to expropriate the subsidy-donations; hence, they are more likely to distribute donations to the intended beneficiaries. Henry B. Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 838–39 (1980). Similarly, the proposed legal form would assure investors and consumers that the firm has incentives to use subsidies effectively. ↑
  20. See, e.g., Matt Onek, Philanthropic Pioneers: Foundations and the Rise of Impact Investing, Stan. Soc. Innovation Rev. (Jan. 17, 2017) https://ssir.org/articles/entry/­philanthropic_pioneers_foundations_and_the_rise_of_impact_investing# [https://perma.cc/­MJ7A-52Q8]. ↑
  21. For example, they range from microfinance institutions to firms that provide eyeglasses in developing countries. ↑

Manipulating Opportunity

Concerns about online manipulation have centered on fears about undermining the autonomy of consumers and citizens. What has been overlooked is the risk that the same techniques of personalizing information online can also threaten equality. When predictive algorithms are used to allocate information about opportunities like employment, housing, and credit, they can reproduce past patterns of discrimination and exclusion in these markets. This Article explores these issues by focusing on the labor market, which is increasingly dominated by tech intermediaries. These platforms rely on predictive algorithms to distribute information about job openings, match job seekers with hiring firms, or recruit passive candidates. Because algorithms are built by analyzing data about past behavior, their predictions about who will make a good match for which jobs will likely reflect existing occupational segregation and inequality. When tech intermediaries cause discriminatory effects, they may be liable under Title VII, and Section 230 of the Communications Decency Act should not bar such actions. However, because of the practical challenges that litigants face in identifying and proving liability retrospectively, a more effective approach to preventing discriminatory effects should focus on regulatory oversight to ensure the fairness of algorithmic systems.

I. Introduction

Our online experiences are increasingly personalized. Facebook and Google micro-target advertisements aimed to meet our immediate needs. Amazon, Netflix, and Spotify offer up books, movies, and music tailored to match our tastes. Our news feeds are populated with stories intended to appeal to our particular interests and biases. This drive toward increasing personalization is powered by complex machine learning algorithms built to discern our preferences and anticipate our behavior. Personalization offers benefits because companies can efficiently offer consumers the precise products and services they desire.

Online personalization, however, has come under considerable criticism lately. Shoshana Zuboff assails our current economic system, which is built on companies amassing and exploiting ever more detailed personal information.1 1.Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power 8–11 (2019).Show More Ryan Calo and Tal Zarsky explain that firms are applying the insights of behavioral science to manipulate consumers by exploiting their psychological or emotional vulnerabilities.2 2.SeeRyan Calo, Digital Market Manipulation, 82 Geo. Wash. L. Rev. 995, 996, 999 (2014); Tal Z. Zarsky, Privacy and Manipulation in the Digital Age, 20 Theoretical Inquiries L. 157, 158, 160–61 (2019).Show More Daniel Susser, Beate Roessler, and Helen Nissenbaum describe how information technology is enabling manipulative practices on a massive scale.3 3.Daniel Susser, Beate Roessler & Helen Nissenbaum, Online Manipulation: Hidden Influences in a Digital World, 4 Geo. L. Tech. Rev. 1, 2, 10 (2019).Show More Julie Cohen similarly argues that “[p]latform-based, massively-intermediated processes of search and social networking are inherently processes of market manipulation.”4 4.Julie E. Cohen, Law for the Platform Economy, 51 U.C. Davis L. Rev. 133, 165 (2017); see also Julie E. Cohen, Between Truth and Power: The Legal Constructions of Informational Capitalism 75–77, 83–89, 96 (2019) (describing how techniques for behavioral surveillance and micro-targeting contribute to social harms such as polarization and extremism).Show More In the political sphere as well, concerns have been raised about manipulation, with warnings that news personalization is creating “filter bubble[s]” and increasing polarization.5 5.See, e.g., Eli Pariser, The Filter Bubble: What the Internet Is Hiding from You 13–14 (2011); Michael J. Abramowitz, Stop the Manipulation of Democracy Online, N.Y. Times (Dec. 11, 2017), https://www.nytimes.com/2017/12/11/opinion/fake-news-russia-kenya.html [https://perma.cc/9YWF-PED7]; James Doubek, How Disinformation and Distortions on Social Media Affected Elections Worldwide, NPR (Nov. 16, 2017, 2:28 PM), https://www.npr.org­/sections/alltechconsidered/2017/11/16/564542100/how-disinformation-and-distortions-on-social-media-affected-elections-worldwide [https://perma.cc/ZJ97-GQ SZ]; Jon Keegan, Blue Feed, Red Feed: See Liberal Facebook and Conservative Facebook, Side by Side, Wall St. J. (Aug. 19, 2019), http://graphics.wsj.com/blue-feed-red-feed/ [https://perma.cc/GJA8-4U9W].Show More These issues were highlighted by revelations that Cambridge Analytica sent personalized ads based on psychological profiles of eighty-seven million Facebook users in an effort to influence the 2016 presidential election.6 6.Carole Cadwalladr & Emma Graham-Harrison, Revealed: 50 Million Facebook Profiles Harvested for Cambridge Analytica in Major Data Breach,Guardian (Mar. 17, 2018, 6:03 PM), https://www.theguardian.com/news/2018/mar/17/cambridge-analytica-facebook-influ­ence-us-election [https://perma.cc/72CR-9Y8K]; Alex Hern, Cambridge Analytica: How Did It Turn Clicks into Votes?, Guardian (May 6, 2018, 3:00 AM), https://www.theguardian.com/­news/2018/may/06/cambridge-analytica-how-turn-clicks-into-votes-christopher-wylie [https://perma.cc/AD8H-PF3M]; Matthew Rosenberg, Nicholas Confessore & Carole Cadwalladr, How Trump Consultants Exploited the Facebook Data of Millions, N.Y. Times (Mar. 17, 2018), https://www.nytimes.com/2018/03/17/us/politics/cambridge-analytica-trump-campaign.html [https://perma.cc/3WYQ-3YKP].Show More The extensive criticism of personalization is driven by concerns that online manipulation undermines personal autonomy and compromises rational decision making.

Largely overlooked in these discussions is the possibility that online manipulation also threatens equality. Online platforms increasingly operate as key intermediaries in the markets for employment, housing, and financial services—what I refer to as opportunity markets. Predictive algorithms are also used in these markets to segment the audience and determine precisely what information will be delivered to which users. The risk is that in doing so, these intermediaries will direct opportunities in ways that reproduce or reinforce historical forms of discrimination. Predictive algorithms are built by observing past patterns of behavior, and one of the enduring patterns in American economic life is the unequal distribution of opportunities along the lines of race, gender, and other personal characteristics. As a result, these systems are likely to distribute information about future opportunities in ways that reflect existing inequalities and may reinforce historical patterns of disadvantage.

The way in which information about opportunities is distributed matters, because these markets provide access to resources that are critical for human flourishing and well-being. In that sense, access to them is foundational. People need jobs and housing before they can act as consumers or voters. They need access to financial services in order to function in the modern economy. Of course, many other factors contribute to inequality, such as unequal educational resources, lack of access to health care, and over-policing in certain communities. Decisions by landlords, employers, or banks can also contribute to inequality. Tech intermediaries are thus just one part of a much larger picture. Nevertheless, they will be an increasingly important part as more and more transactions are mediated online.7 7.See, e.g., Miranda Bogen & Aaron Rieke, Help Wanted: An Examination of Hiring Algorithms, Equity, and Bias 5–6 (2018) (describing the role of platforms in the hiring process); Geoff Boeing, Online Rental Housing Market Representation and the Digital Reproduction of Urban Inequality, 52 Env’t & Plan. A 449, 450 (2019) (documenting the growing impact of Internet platforms in shaping the rental housing market).Show More Because they control access to information about opportunities, they have the potential to significantly impact how these markets operate.

Online intermediaries have unprecedented potential to finely calibrate the distribution of information. In the past, traditional print or broadcast media might aim at a particular audience, but they could not prevent any particular individual from accessing information that they published. And if an advertiser tried to signal its interest in only a particular group—as has happened with real estate ads that used code words or featured only white models—the attempts at exclusion were plainly visible. In contrast, online intermediaries have the ability to precisely target an audience, selecting some users to receive information and others to be excluded in ways that are not at all transparent.

The issue is illustrated by Facebook’s ad-targeting tools. Several lawsuits alleged that employers or landlords could use the company’s tools to exclude users on the basis of race, gender, or age from their audience.8 8.See infra Section II.B.Show More To a large extent, these concerns were resolved by a recent settlement in which Facebook agreed to bar the use of sensitive demographic variables to target employment, housing, and credit advertisements.9 9.See Galen Sherwin & Esha Bhandari, Facebook Settles Civil Rights Cases by Making Sweeping Changes to Its Online Ad Platform, ACLU (Mar. 19, 2019, 2:00 PM), https://www.aclu.org/blog/womens-rights/womens-rights-workplace/facebook-settles-civil-rights-cases-making-sweeping [https://perma.cc/H6D6-UMJ4].Show More However, the settlement failed to address another potential source of bias—Facebook’s ad-delivery algorithm, which determines which users within a targeted audience actually receive an ad. As explained below, even if an advertiser uses neutral targeting criteria and intends to reach a diverse audience, an ad-targeting algorithm may distribute information about opportunities in a biased way.10 10.See infra Section II.C.Show More This is an example of a much broader concern—namely, that when predictive algorithms are used to allocate access to opportunities, there is a significant risk that they will do so in a way that reproduces existing patterns of inequality and disadvantage.

Concerns about the distributive effects of predictive algorithms are relevant to all kinds of opportunity markets, including for housing, employment, and basic financial services. Each of these markets operates somewhat differently and is regulated under different laws. They deserve separate attention and more detailed consideration than can be provided here. This Article focuses on the labor market and the relevant laws regulating it; however, the issues it raises likely plague other opportunity markets as well.

Examining employment practices reveals dramatic change. Just a couple of decades ago, employers had a handful of available strategies for recruiting new workers, such as advertising in newspapers or hiring through an employment agency. Today, firms increasingly rely on tech intermediaries to fill job openings.11 11.See Bogen & Rieke, supra note 7, at 5–6.Show More Recent surveys suggest that somewhere from 84% to 93% of job recruiters use online strategies to find potential employees.12 12.Soc’y for Human Res. Mgmt., SHRM Survey Findings: Using Social Media for Talent Acquisition—Recruitment and Screening 3 (Jan. 7, 2016), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/SHRM-Social-Media-Recruiting-Screening-2015.pdf [https://perma.cc/L6NT-N4KL]. The Society for Human Resource Management conducts biennial surveys of job recruiters. The surveys demonstrated an increase in the use of online recruiting by employers, rising from fifty-six percent in 2011 to seventy-seven percent in 2013 to eighty-four percent in 2015.Id.; Soc’y for Human Res. Mgmt., SHRM Survey Findings: Social Networking Websites and Recruiting/Selection 2 (Apr. 11, 2013), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-sur­veys/Pages/shrm-social-networking-websites-recruiting-job-candidates.aspx [https://perma.cc/U4HN-E7U7]; see also Jobvite’s New 2015 Recruiter Nation Survey Reveals Talent Crunch, Jobvite (Sept. 22, 2015), https://www.jobvite.com/news_item/­jobvites-new-2015-recruiter-nation-survey-reveals-talent-crunch-95-recruiters-anticipate-similar-increased-competition-skilled-workers-coming-year-86-expect-exp/ [https://perma.cc /H66S-8E5Z] (stating that 92% of recruiters use social media to discover or evaluate candidates).Show More Employers distribute information about positions through social media. They also rely on specialized job platforms like ZipRecruiter, LinkedIn, and Monster to recruit applicants and recommend the strongest candidates.13 13.See Bogen & Rieke, supra note 7, at 5, 19–20, 24.Show More In addition, passive recruiting—using data to identify workers who are not actively looking for another position—is a growing strategy for recruiting new talent.14 14.Id. at 22.Show More

The use of algorithms and artificial intelligence in the hiring process has not gone unnoticed. Numerous commenters and scholars have described how employers are using automated decision systems and have raised concerns that these developments may cause discrimination or threaten employee privacy.15 15.See, e.g., Ifeoma Ajunwa, Kate Crawford & Jason Schultz, Limitless Worker Surveillance, 105 Calif. L. Rev. 735, 738–39 (2017); Ifeoma Ajunwa, The Paradox of Automation as Anti-Bias Intervention, 41 Cardozo L. Rev. (forthcoming 2020) (manuscript at 14) (on file with author); Richard A. Bales & Katherine V.W. Stone, The Invisible Web of Work: Artificial Intelligence and Electronic Surveillance in the Workplace, 41 Berkeley J. Lab. & Emp. L. (forthcoming 2020) (manuscript at 3) (on file with author); Solon Barocas & Andrew D. Selbst, Big Data’s Disparate Impact, 104 Calif. L. Rev. 671, 673–75 (2016); Matthew T. Bodie, Miriam A. Cherry, Marcia L. McCormick & Jintong Tang, The Law and Policy of People Analytics, 88 U. Colo. L. Rev. 961, 989–92 (2017); James Grimmelmann & Daniel Westreich, Incomprehensible Discrimination, 7 Calif. L. Rev. Online 164, 170–72, 176–77 (2017); Jeffrey M. Hirsch, Future Work, 2020 U. Ill. L. Rev. (forthcoming 2020) (manuscript at 3) (on file with author); Pauline T. Kim, Data-Driven Discrimination at Work, 58 Wm. & Mary L. Rev. 857, 860–61 (2017) [hereinafter Kim, Data-Driven Discrimination at Work]; Pauline T. Kim, Data Mining and the Challenges of Protecting Employee Privacy Under U.S. Law, 40 Comp. Lab. L. & Pol’y J. 405, 406 (2019); Pauline T. Kim & Erika Hanson, People Analytics and the Regulation of Information Under the Fair Credit Reporting Act, 61 St. Louis U. L.J. 17, 18–19 (2016); Charles A. Sullivan, Employing AI, 63 Vill. L. Rev. 395, 396 (2018).Show More However, previous work has focused on whether employers can or should be held liable when they use predictive algorithms or other artificial intelligence tools to make personnel decisions. What is missing from this literature is close scrutiny of how tech intermediaries are shaping labor markets and the implications for equality.

This Article undertakes that analysis, arguing that the use of predictive algorithms by labor market intermediaries risks reinforcing or even worsening existing patterns of inequality and that these intermediaries should be accountable for those effects. A number of studies have documented instances of biased delivery of employment ads.16 16.See infra Section II.C.Show More Although the exact mechanism is unclear, it should not be surprising that predictive algorithms distribute information about job opportunities in biased ways. These algorithms are built by analyzing existing data, and one of the most persistent facts of the U.S. labor market is ongoing occupational segregation along the lines of race and gender.17 17.See infra Section II.D.Show More If predictions are based solely on observations about past behavior—without regard to what social forces shaped that behavior—then they are likely to reproduce those patterns.

Tech intermediaries may not intend to cause discriminatory effects, but they are nevertheless responsible for them.18 18.Building predictive models involves numerous choices, many of them implicating value judgments. See, e.g., Barocas & Selbst, supra note 15, at 674; Margot E. Kaminski, Binary Governance: Lessons from the GDPR’s Approach to Algorithmic Accountability, 92 S. Cal. L. Rev. 1529, 1539 (2019); David Lehr & Paul Ohm, Playing with the Data: What Legal Scholars Should Learn About Machine Learning, 51 U.C. Davis L. Rev. 653, 703–04 (2017); Andrew D. Selbst & Solon Barocas, The Intuitive Appeal of Explainable Machines, 87 Fordham L. Rev. 1085, 1130–31 (2018).Show More They make choices when designing the algorithms that distribute information about job opportunities or suggest the best matches for job seekers and hiring firms. In doing so, they decide what goals to optimize—typically revenue—and those choices influence how information is channeled, making some opportunities visible and obscuring others. Thus, these technologies shape how the market participants—both workers and employers—perceive their available options and thereby also influence their behavior.19 19.Karen Levy and Solon Barocas have explored how the design choices made by platforms “can both mitigate and aggravate bias.” Karen Levy & Solon Barocas, Designing Against Discrimination in Online Markets, 32 Berkeley Tech. L.J. 1183, 1185 (2017). The focus of their analysis is on user bias in online markets like ride matching, consumer-to-consumer sales, short-term rentals, and dating. Id. at 1189–90. Because the design choices platforms make will structure users’ interactions with one another, these choices influence behavior, affecting whether or to what extent users can act on explicit or implicit biases. Levy and Barocas review multiple platforms across domains and develop a taxonomy of policy and design elements that have been used to address the risks of bias. Although the focus of this Article is on the impact of predictive algorithms rather than user bias, the issues are obviously interrelated. Past bias by users can cause predictive algorithms to discriminate. Conversely, algorithmic outputs in the form of recommendations or rankings can activate or exacerbate implicit user biases. To that extent, some, but not all, of the strategies they identify may be relevant to addressing bias in online opportunity markets.Show More When these intermediaries structure access to opportunities in ways that reflect historical patterns of discrimination and exclusion, they pose a threat to workplace equality. Even if the discriminatory effects are unintentional, the harm to workers can be real. Employment discrimination law has long targeted discriminatory effects, not just invidious motivation.20 20.See Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971).Show More

The risk that tech intermediaries will contribute to workplace inequality poses a number of challenges for the law. Discrimination law has largely focused on employers, examining their decisions and practices for discriminatory intent or impact. However, if bias affects how potential applicants are screened out before they even interact with a hiring firm, then focusing on employer behavior will be inadequate to dismantle patterns of occupational segregation. Holding tech intermediaries directly responsible for their effects on labor markets, however, will raise a different set of challenges. Some of these are legal, such as whether existing law reaches these types of intermediaries,21 21.See infra Part III.Show More and whether they can avoid liability by relying on Section 230 of the Communications Decency Act (CDA),22 22.47 U.S.C. § 230 (2012).Show More which gives websites a defense to some types of liability. Other obstacles are more practical in nature, which suggests that preventing discriminatory effects may require alternative strategies.23 23.See infra Section IV.B.Show More

This Article proceeds as follows. Part II first explores the role that tech intermediaries play in the labor market and how targeting tools can be misused for discriminatory purposes. It next explains that even if employers are no longer permitted to use discriminatory targeting criteria, a significant risk remains that platforms’ predictive algorithms will distribute access to opportunities in ways that reproduce existing patterns of inequality. Because tech intermediaries have a great deal of power to influence labor market interactions, and may do so in ways that are not transparent, I argue in Part II that they should bear responsibility when they cause discriminatory effects.

Parts III and IV consider the relevant legal landscape. Part III discusses how the growing importance of tech intermediaries in the labor market poses challenges for existing anti-discrimination law. It first shows how the question “who is an applicant?”—an issue critical for finding employer liability—is complicated as platforms increasingly mediate job seekers’ interactions with firms. It then explores the possibilities for holding these intermediaries directly liable under existing employment discrimination law, either as employment agencies or for interfering with third party employment relationships. Part IV considers some obstacles to holding tech intermediaries liable for their discriminatory labor market effects. Section IV.A examines and rejects the argument that Section 230 of the Communications Decency Act would automatically bar such claims. Section IV.B explains that significant practical obstacles remain, suggesting that a post hoc liability regime may not be the best way to prevent discriminatory harms. Thus, Section IV.B also argues that we should look to regulatory models in order to minimize the risks of discrimination from the use of predictive algorithms.

  1. * Daniel Noyes Kirby Professor of Law, Washington University School of Law, St. Louis, Missouri. I am grateful to Victoria Schwarz, Miranda Bogen, Aaron Riecke, Greg Magarian, Neil Richards, Peggie Smith, Dan Epps, John Inazu, Danielle Citron, Ryan Calo, Andrew Selbst, Margot Kaminski, and Felix Wu for helpful comments on earlier drafts of this Article. I also benefited from feedback from participants at the 2019 Privacy Law Scholar’s Conference, Washington University School of Law’s faculty workshop, and Texas A&M School of Law’s Faculty Speaker Series. Many thanks to Adam Hall, Theanne Liu, Joseph Tomchak, and Samuel Levy for outstanding research assistance. ↑
  2. Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power 8–11 (2019). ↑
  3. See Ryan Calo, Digital Market Manipulation, 82 Geo. Wash. L. Rev. 995, 996, 999 (2014); Tal Z. Zarsky, Privacy and Manipulation in the Digital Age, 20 Theoretical Inquiries L. 157, 158, 160–61 (2019). ↑
  4. Daniel Susser, Beate Roessler & Helen Nissenbaum, Online Manipulation: Hidden Influences in a Digital World, 4 Geo. L. Tech. Rev. 1, 2, 10 (2019). ↑
  5. Julie E. Cohen, Law for the Platform Economy, 51 U.C. Davis L. Rev.
    133, 165 (2017)

    ; see also Julie E. Cohen, Between Truth and Power: The Legal Constructions of Informational Capitalism 75–77, 83–89, 96 (2019) (describing how techniques for behavioral surveillance and micro-targeting contribute to social harms such as polarization and extremism). ↑

  6. See, e.g., Eli Pariser, The Filter Bubble: What the Internet Is Hiding from You 13–14 (2011); Michael J. Abramowitz, Stop the Manipulation of Democracy Online, N.Y. Times (Dec. 11, 2017), https://www.nytimes.com/2017/12/11/opinion/fake-news-russia-kenya.html [https://perma.cc/9YWF-PED7]; James Doubek, How Disinformation and Distortions
    on Social Media Affected Elections Worldwide, NPR (Nov. 16, 2017, 2:28 PM), https://www.npr.org­/sections/alltechconsidered/2017/11/16/564542100/how-disinformation-and-distortions-on-social-media-affected-elections-worldwide [https://perma.cc/ZJ97-GQ SZ]; Jon Keegan, Blue Feed, Red Feed: See Liberal Facebook and Conservative Facebook, Side by Side, Wall St. J. (Aug. 19, 2019), http://graphics.wsj.com/blue-feed-red-feed/ [https://perma.cc/GJA8-4U9W]. ↑
  7. Carole Cadwalladr & Emma Graham-Harrison, Revealed: 50 Million Facebook Profiles Harvested for Cambridge Analytica in Major Data Breach, Guardian (Mar. 17, 2018, 6:03 PM), https://www.theguardian.com/news/2018/mar/17/cambridge-analytica-facebook-influ­ence-us-election [https://perma.cc/72CR-9Y8K]; Alex Hern, Cambridge Analytica: How Did It Turn Clicks into Votes?, Guardian (May 6, 2018, 3:00 AM), https://www.theguardian.com/­news/2018/may/06/cambridge-analytica-how-turn-clicks-into-votes-christopher-wylie [https://perma.cc/AD8H-PF3M]; Matthew Rosenberg, Nicholas Confessore & Carole Cadwalladr, How Trump Consultants Exploited the Facebook Data of Millions, N.Y. Times (Mar. 17, 2018), https://www.nytimes.com/2018/03/17/us/politics/cambridge-analytica-trump-campaign.html [https://perma.cc/3WYQ-3YKP]. ↑
  8. See, e.g., Miranda Bogen & Aaron Rieke, Help Wanted: An Examination of Hiring Algorithms, Equity, and Bias 5–6 (2018) (describing the role of platforms in the hiring process); Geoff Boeing, Online Rental Housing Market Representation and the Digital Reproduction of Urban Inequality, 52 Env’t & Plan. A 449, 450 (2019) (documenting the growing impact of Internet platforms in shaping the rental housing market). ↑
  9. See infra Section II.B. ↑
  10.  See Galen Sherwin & Esha Bhandari, Facebook Settles Civil Rights Cases by Making Sweeping Changes to Its Online Ad Platform, ACLU (Mar. 19, 2019, 2:00 PM), https://www.aclu.org/blog/womens-rights/womens-rights-workplace/facebook-settles-civil-rights-cases-making-sweeping [https://perma.cc/H6D6-UMJ4]. ↑
  11. See infra Section II.C. ↑
  12. See Bogen & Rieke, supra note 7, at 5–6. ↑
  13. Soc’y for Human Res. Mgmt., SHRM Survey Findings: Using Social Media for Talent Acquisition—Recruitment and Screening 3 (Jan. 7, 2016), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/SHRM-Social-Media-Recruiting-Screening-2015.pdf [https://perma.cc/L6NT-N4KL]. The Society for Human Resource Management conducts biennial surveys of job recruiters. The surveys demonstrated an increase in the use of online recruiting by employers, rising from fifty-six percent in 2011 to seventy-seven percent in 2013 to eighty-four percent in 2015. Id.; Soc’y for Human Res. Mgmt., SHRM Survey Findings: Social Networking Websites and Recruiting/Selection 2 (Apr. 11, 2013), https://www.shrm.org/hr-today/trends-and-forecasting/research-and-sur­veys/Pages/shrm-social-networking-websites-recruiting-job-candidates.aspx [https://perma.cc/U4HN-E7U7]; see also Jobvite’s New 2015 Recruiter Nation Survey Reveals Talent Crunch, Jobvite (Sept. 22, 2015), https://www.jobvite.com/news_item/­jobvites-new-2015-recruiter-nation-survey-reveals-talent-crunch-95-recruiters-anticipate-similar-increased-competition-skilled-workers-coming-year-86-expect-exp/ [https://perma.cc /H66S-8E5Z] (stating that 92% of recruiters use social media to discover or evaluate candidates). ↑
  14. See Bogen & Rieke, supra note 7, at 5, 19–20, 24. ↑
  15. Id. at 22. ↑
  16.  See, e.g., Ifeoma Ajunwa, Kate Crawford & Jason Schultz, Limitless Worker Surveillance, 105 Calif. L. Rev. 735, 738–39 (2017); Ifeoma Ajunwa, The Paradox of Automation as Anti-Bias Intervention, 41 Cardozo L. Rev. (forthcoming 2020) (manuscript at 14) (on file with author); Richard A. Bales & Katherine V.W. Stone, The Invisible Web of Work: Artificial Intelligence and Electronic Surveillance in the Workplace, 41 Berkeley J. Lab. & Emp. L. (forthcoming 2020) (manuscript at 3) (on file with author); Solon Barocas & Andrew D. Selbst, Big Data’s Disparate Impact, 104 Calif. L. Rev. 671, 673–75 (2016); Matthew T. Bodie, Miriam A. Cherry, Marcia L. McCormick & Jintong Tang, The Law and Policy of People Analytics, 88 U. Colo. L. Rev. 961, 989–92 (2017); James Grimmelmann & Daniel Westreich, Incomprehensible Discrimination, 7 Calif. L. Rev. Online 164, 170–72, 176–77 (2017); Jeffrey M. Hirsch, Future Work, 2020 U. Ill. L. Rev. (forthcoming 2020) (manuscript at 3) (on file with author); Pauline T. Kim, Data-Driven Discrimination at Work, 58 Wm. & Mary L. Rev. 857, 860–61 (2017) [hereinafter Kim, Data-Driven Discrimination at Work]; Pauline T. Kim, Data Mining and the Challenges of Protecting Employee Privacy Under U.S. Law, 40 Comp. Lab. L. & Pol’y J. 405, 406 (2019); Pauline T. Kim & Erika Hanson, People Analytics and the Regulation of Information Under the Fair Credit Reporting Act, 61 St. Louis U. L.J. 17, 18–19 (2016); Charles A. Sullivan, Employing AI, 63 Vill. L. Rev. 395, 396 (2018). ↑
  17. See infra Section II.C. ↑
  18. See infra Section II.D. ↑
  19. Building predictive models involves numerous choices, many of them implicating value judgments. See, e.g., Barocas & Selbst, supra note 15, at 674; Margot E. Kaminski, Binary Governance: Lessons from the GDPR’s Approach to Algorithmic Accountability, 92 S. Cal. L. Rev. 1529, 1539 (2019); David Lehr & Paul Ohm, Playing with the Data: What Legal Scholars Should Learn About Machine Learning, 51 U.C. Davis L. Rev. 653, 703–04 (2017); Andrew D. Selbst & Solon Barocas, The Intuitive Appeal of Explainable Machines, 87 Fordham L. Rev. 1085, 1130–31 (2018). ↑
  20. Karen Levy and Solon Barocas have explored how the design choices made by platforms “can both mitigate and aggravate bias.” Karen Levy & Solon Barocas, Designing Against Discrimination in Online Markets, 32 Berkeley Tech. L.J. 1183, 1185 (2017). The focus of their analysis is on user bias in online markets like ride matching, consumer-to-consumer sales, short-term rentals, and dating. Id. at 1189–90. Because the design choices platforms make will structure users’ interactions with one another, these choices influence behavior, affecting whether or to what extent users can act on explicit or implicit biases. Levy and Barocas review multiple platforms across domains and develop a taxonomy of policy and design elements that have been used to address the risks of bias. Although the focus of this Article is on the impact of predictive algorithms rather than user bias, the issues are obviously interrelated. Past bias by users can cause predictive algorithms to discriminate. Conversely, algorithmic outputs in the form of recommendations or rankings can activate or exacerbate implicit user biases. To that extent, some, but not all, of the strategies they identify may be relevant to addressing bias in online opportunity markets. ↑
  21. See Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971). ↑
  22. See infra Part III. ↑
  23. 47 U.S.C. § 230 (2012). ↑
  24. See infra Section IV.B. ↑
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