Article

A Public Calling for Private Employees

Two of society’s most important institutions face a crisis of legitimacy: regulatory agencies and corporations. Regulators are on the front lines guarding against climate change, technological upheaval, economic disasters, and other large-scale threats to society. Yet they are under siege from all branches of government and derided as ineffective, inefficient, and undemocratic. Corporations develop life-saving medical innovations, dramatically lower the costs of everything from food to transportation, and provide free information to people at a scale unimaginable thirty years ago. Yet they are commonly viewed as unethical, exploitative, and destructive. It is fair to wonder whether administrative agencies and corporations are poised to tackle the existential challenges that they are arguably best situated to address.

This Article unites these two institutional crises by a common thread: the link between corporate employees and public servants. As a descriptive matter, corporate and administrative employees are more related than they may at first appear. Administrative agencies have long sought the help of corporate employees, many of whom now perform similar tasks to those of regulatory inspectors. Compliance officers, auditors, and other law-related employees within corporations are now at least as numerous as police officers patrolling the streets.

From a policy perspective, corporate employees could serve the public better if they had more power and motivation to act for the public good. To illustrate what increased power might look like, if public-minded employees had more confidential avenues to communicate problematic conduct to regulatory enforcers, they would have a greater ability to influence corporate conduct. A more ambitious agenda for increasing motivation and power would be to encourage a societal shift toward viewing private employees as having a duty not only to shareholders, but also to society. Whether through these or other options, it is important to pay greater attention to the part of the corporation where legal scholars have focused the least: its core, or the low- and mid-level employees who are not engaged in law-related work. Reorienting governance around these core employees offers promise to enhance regulatory effectiveness, cut corporate costs, make work more fulfilling, and lessen the institutional mistrust eroding the foundations of democracy.

Introduction

Private sector employees have become “the single most significant source for detecting and preventing crime—more so than government regulators, law enforcement personnel, and program auditors combined.”1 1.Jonathan P. West & James S. Bowman, Whistleblowing Policies in American States: A Nationwide Analysis, 50 Am. Rev. Pub. Admin. 119, 120 (2020).Show More Private employees exposed many of the most prominent corporate scandals, including Theranos’s life-threatening biotechnology blood testing practices,2 2.John Carreyrou, Bad Blood: Secrets and Lies in a Silicon Valley Startup 195, 281–82 (2018).Show More Wells Fargo’s creation of millions of fake accounts in customers’ names,3 3.See, e.g., J.S. Nelson, Disclosure-Driven Crime, 52 U.C. Davis L. Rev. 1487, 1498, 1533 (2019); Leslie Scism, Prudential Fires Back Against Three Former Employees, Wall St. J., htt‌ps://www.wsj.com/articles/prudential-fires-back-against-three-former-employees-1485437572 (last updated Jan. 26, 2017, at 14:44 ET).Show More and Meta’s knowledge that its algorithms fed children dangerous content with the potential to promote self-harm and eating disorders.4 4.See Hillary A. Sale, Monitoring Facebook,12 Harv. Bus. L. Rev. 439, 441 (2022).Show More The private employee is arguably the single most important regulatory agent guarding against pressing challenges, such as climate change, consumer exploitation, and disinformation.5 5.See infra Part I.Show More

Despite society relying heavily on private employees to govern, the law mostly forsakes them. An ethical employee’s main option is to become a whistleblower. But whistleblower protections are strongest when employees help shareholders, such as by reporting securities fraud or embezzlement of company funds.6 6.See infra Section II.A. Reporting such misconduct internally is more organizationally acceptable because doing so arguably increases shareholder wealth. This means that the conduct upholds shareholder primacy—the influential norm that corporations should prioritize maximizing shareholder wealth. See, e.g., Donald C. Langevoort, The Effects of Shareholder Primacy, Publicness, and “Privateness” on Corporate Cultures, 43 Seattle U. L. Rev. 377, 382–84 (2020) (summarizing the origins and influence of shareholder primacy and linking it to compliance).Show More In contrast, when employees raise ethical concerns about profitable environmental degradation or consumer manipulation, they risk being perceived internally as harming shareholders. If employees instead choose to go public, weak whistleblower protections mean that their careers are routinely ruined.7 7.Aaron S. Kesselheim, David M. Studdert & Michelle M. Mello, Whistle-Blowers’ Experiences in Fraud Litigation Against Pharmaceutical Companies, 362 NEJM1832, 1836 (2010) (describing the resulting personal toll of whistleblowing). In select areas with strong whistleblower protections, however, whistleblowers fare better. See infra Section III.A.Show More Even among whistleblowers who are ultimately vindicated, “most of them pay a horrible price with lifelong scars.”8 8.See Tom Devine & Tarek F. Maassarani, Gov’t Accountability Project, The Corporate Whistleblower’s Survival Guide: A Handbook for Committing the Truth 18 (2011); see also C. Fred Alford, Whistleblowers: Broken Lives and Organizational Power 1 (2001) (“[One whistleblower] put it this way: . . . ‘I stood up against the big corporation and I lost. I didn’t just lose my job. I lost my house, and then I lost my family.’”). In one study of False Claims Act lawsuits, employers retaliated against the employees in the vast majority of all cases. Aiyesha Dey, Jonas Heese & Gerardo Pérez-Cavazos, Cash-for-Information Whistleblower Programs: Effects on Whistleblowing and Consequences for Whistleblowers, 59 J. Acct. Rsch. 1689, 1692 (2021).Show More Additionally, corporations use trade secret laws, nondisclosure agreements, and company policies to scare employees away from sharing information with regulators.9 9.See infra Subsection III.A.1.Show More To enforce the law, employees must too often take on powerful corporate pressures from an isolated position of weakness.

This Article sketches private workers’ place at the center of the regulatory architecture, identifies weaknesses in that structure’s design, and proposes reforms that would enable workers to govern from a position of greater power. As a descriptive matter, corporate employees are connected to public servants in part because they often perform functions similar to those of administrative agency employees. Moreover, regulatory agencies often monitor, shape, and even informally manage the compliance systems within large companies.10 10.Rory Van Loo, Regulatory Monitors: Policing Firms in the Compliance Era, 119 Colum. L. Rev. 369, 369 (2019).Show More Agencies are thus one of the sources of external pressure that have made lawyers, compliance officers, and risk-management employees in the corporate sector about as numerous as police officers patrolling U.S. streets.11 11.See infra Section I.A (showing how large regulators have sought to enlist the help of corporate employees for decades). For data on the number of law-related personnel in the private sector, see William S. Laufer, A Very Special Regulatory Milestone, 20 U. Pa. J. Bus. L. 392, 393–94 (2017) (“There soon will be as many enterprise-wide risk, audit, legal, and compliance professionals on the payroll of corporations in the United States as municipal police officers keeping our streets safe.”). Since Laufer’s estimate that the two figures were close, the number of compliance officers alone has increased by over forty percent, while the number of police officers has decreased by nearly two percent. See id. at 393 n.1 (citing Press Release, Bureau of Lab. Stat., U.S. Dep’t of Lab., Occupational Employment and Wages—May 2016 (Mar. 31, 2017) [hereinafter 2016 Employment and Wages Press Release], https://w‌ww.bls.gov/news.release/archives/ocwage_03312017.pdf [https://perma.cc/Z9ZD-BQFU]) (providing a 2016 estimate for compliance officers as 273,000); Bureau of Lab. Stat., U.S. Dep’t of Lab., Occupational Employment and Wages, May 2023: 13-1041 Compliance Officers, https://www.bls.gov/oes/2023/may/oes131041.htm [https://perma.cc/FF27-2ZZS] (last updated Apr. 3, 2024) (providing a 2023 estimate for compliance officers as 383,620); 2016 Employment and Wages Press Release, supra (putting a 2016 police and sheriff’s patrol officer estimate at 657,690); Bureau of Lab. Stat., U.S. Dep’t of Lab., Occupational Employment and Wages, May 2023: 33-3051 Police and Sheriff’s Patrol Officers, https://ww‌w.bls.gov/oes/2023/may/oes333051.htm [https://perma.cc/BX4B-BLZB] (last updated Apr. 3, 2024) (reporting a 2023 police and sheriff’s patrol officer estimate of 646,310).Show More Although a substantial workforce of such law-related employees may be unavoidable, they are normatively less desirable for enforcing regulations than core employees.12 12.See infra Part II. These are not mutually exclusive categories in the sense that both law-related employees and core employees can become whistleblowers.Show More Relying as much as possible on core employees—such as pharmaceutical scientists, computer engineers, or sales agents—to enforce laws from within the corporation has the most potential to regulate costs effectively while improving legitimacy.13 13.See infra Part I.Show More Instead, the current regulatory architecture inverts the normative hierarchy by leaning heavily on law-related employees.14 14.See infra Part I.Show More Moreover, for core employees to promote the public interest, too often they must do so from a position of weakness unless they come forward publicly as whistleblowers, which is perhaps the least desirable outcome for both them and their employers.

This Article explores two main ways to improve the framework for enlisting private employees as public servants. Even with existing statutory authority, administrative agencies can extend greater power to core employees and thereby better align private enforcement with public norms. Alternatively, even without any administrative agency action, a societal shift to viewing frontline workers as having a public calling could itself lead to meaningful progress.

By situating private employees at the center of the regulatory state, this Article connects three vibrant strands of legal scholarship: administrative law, corporate law, and social movements. In recent years, administrative law scholarship has begun “crack[ing] open the black box of agencies to peer inside,”15 15.Elizabeth Magill & Adrian Vermeule, Allocating Power Within Agencies, 120 Yale L.J. 1032, 1035 (2011).Show More which has shown that administrative agency inspectors and other monitors lie at the heart of regulatory power.16 16.Van Loo, supra note 10 (chronicling “the statutory rise of regulatory monitors . . . to situate them empirically at the core of modern administrative power”).Show More These sub-organizational examinations have been motivated partly by the notion that conversations about administrative law “are incomplete because agencies are typically treated as unitary entities.”17 17.Magill & Vermeule, supra note 15, at 1032 (“Standard questions in the theory of administrative law involve the allocation of power among legislatures, courts, the President, and various types of agencies.”).Show More Conceptualizing corporate employees as regulatory agents means cracking open the black box of agencies, which requires understanding how agencies leverage corporate employees. Despite paying considerable attention to businesses as regulatory actors, however, administrative law scholars have rarely paid sustained attention to mapping corporations’ internal actors playing a regulatory role.18 18.The “religion” of privatization has sometimes drawn administrative and constitutional law scholars to examine businesses more closely. Martha Minow, Public and Private Partnerships: Accounting for the New Religion, 116 Harv. L. Rev. 1229, 1229–30, 1247 (2003). Privatization, however, concerns the government moving traditionally public services, like operating prisons, toward private businesses. Id. at 1229–30. Of greater relevance is the early literature identifying a panoply of regulatory models, including a new governance era in which agencies and firms collaborate to solve problems rather than act as adversaries, which provides valuable foundations for the agency-firm connection on which this Article builds. See, e.g., Cary Coglianese & David Lazer, Management-Based Regulation: Prescribing Private Management to Achieve Public Goals, 37 Law & Soc’y Rev. 691, 725 (2003) (analyzing a regulatory model in which government “regulators outline criteria for private sector planning and conduct varying degrees of oversight to ensure that firms are engaging in effective planning and implementation that satisfies the stated criteria”); Jody Freeman, Collaborative Governance in the Administrative State, 45 UCLA L. Rev. 1, 30 (1997); Ian Ayres & John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate 4–7 (Donald R. Harris, Keith Hawkins, Sally Lloyd-Bostock & Doreen McBarnet eds., 1992); Orly Lobel, The Renew Deal: The Fall of Regulation and the Rise of Governance in Contemporary Legal Thought, 89 Minn. L. Rev. 342, 345–47, 376–78 (2004). Finally, scholars have increasingly examined agencies’ intersections with firms’ compliance officers. See Nicholas R. Parrillo, Federal Agency Guidance and the Power to Bind: An Empirical Study of Agencies and Industries, 36 Yale J. on Reg. 165, 204–05, 271 (2019) (concluding that compliance officers sometimes implement agency guidance). Compliance officers are, however, merely one subset of employee enforcers. See infra Section I.B.Show More

Consequently, the task of mapping the internal enforcement apparatus within the firm has largely fallen on corporate law scholars. Scholars have conceived of the rise of compliance departments as a transformation in corporate culture, governance, and organizational structure.19 19.Michele DeStefano, Creating a Culture of Compliance: Why Departmentalization May Not Be the Answer, 10 Hastings Bus. L.J. 71, 72 (2014) (“What might have been thought of twenty years ago as a basic corporate governance function is now being ceded to compliance departments.” (footnote omitted)); id. at 74–75; James A. Fanto, Surveillant and Counselor: A Reorientation in Compliance for Broker-Dealers, 2014 BYU L. Rev. 1121, 1139–42, 1163–67; Donald C. Langevoort, Cultures of Compliance, 54 Am. Crim. L. Rev. 933, 940–41 (2017).Show More Yet these corporate law literatures tend to pay limited attention to agencies or treat them as unitary entities.20 20.See infra Part I.Show More These literatures also overwhelmingly focus on white-collar crime and the Department of Justice (“DOJ”), and only secondarily on the Securities and Exchange Commission (“SEC”), which is the main agency dedicated to protecting investors.21 21.See, e.g., Miriam Hechler Baer, Governing Corporate Compliance, 50 B.C. L. Rev. 949, 959 (2009) (focusing on the DOJ and, to a lesser extent, the SEC).Show More These entities do not conduct the bulk of enforcement activity, which occurs through Environmental Protection Agency (“EPA”) engineers, Federal Reserve examiners, Food and Drug Administration (“FDA”) inspectors, and other regulatory monitors.22 22.See Van Loo, supra note 10, at 373–74, 435 (demonstrating the centrality of monitors to regulatory agencies and linking them to compliance departments).Show More The Environmental, Social, and Governance (“ESG”) literature is also disconnected from regulatory agencies and revolves around public duties at the top of the organization rather than the bottom.23 23.For an important account of ESG and its limits, see Dorothy S. Lund & Elizabeth Pollman, The Corporate Governance Machine, 121 Colum. L. Rev. 2563, 2563, 2566, 2615 (2021). Although certainly of a similar spirit, scholarly calls for reforming shareholder primacy tend to see core employees mostly as beneficiaries of reforms rather than, as this Article does, central actors bringing about societal change. See, e.g., Oliver Hart & Luigi Zingales, The New Corporate Governance, 1 U. Chi. Bus. L. Rev. 195, 196–97 (2022) (calling for “shareholder welfare maximization” to replace “shareholder value maximization” as the guiding norm for the corporation (emphasis omitted)).Show More

Unlike administrative law or corporate law conversations, social movement scholarship sometimes situates frontline employees as the main object of study. In the technology industry in particular, scholars have observed that rather than remaining “on the sidelines, employees are taking a stand”24 24.Jennifer S. Fan, Employees as Regulators: The New Private Ordering in High Technology Companies, 2019 Utah L. Rev. 973, 1026.Show More to engage in “governance . . . from the bottom up.”25 25.Hannah Bloch-Wehba, Algorithmic Governance from the Bottom Up, 48 BYU L. Rev. 69, 69 (2022).Show More Yet those important conversations are mostly disconnected from administrative law and corporate law conversations at the heart of this Article. Missing from administrative law, corporate law, and social movement accounts is a mapping of the systematic sub-organizational links between administrative agencies and the broader set of actors within businesses working toward related goals.

In integrating the internal laws of administrative agencies and corporations, this Article also connects the distinct “crisis of legitimacy” facing each of these institutions.26 26.This is not a new issue for either field. See Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543, 545 (2000) (“Since the New Deal explosion of government agencies, administrative law has been defined by the crisis of legitimacy and the problem of agency discretion.”); Roland Marchand, Creating the Corporate Soul: The Rise of Public Relations and Corporate Imagery in American Big Business2 (1998) (“[M]ajor corporations expanded at a bewildering pace at the end of the nineteenth century . . . . This momentous shift in the balance of social forces created a crisis of legitimacy for the large corporations.”).Show More All branches of government have recently assailed administrative agencies. Presidents have led systematic “administrative sabotage”27 27.David L. Noll, Administrative Sabotage, 120 Mich. L. Rev. 753, 753 (2022).Show More that has damaged agency resources, expertise, and reputation.28 28.Jody Freeman & Sharon Jacobs, Structural Deregulation, 135 Harv. L. Rev. 585, 586, 588 (2021).Show More Lawmakers have dismantled years of agency rulemaking under the Congressional Review Act.29 29.Bethany A. Davis Noll & Richard L. Revesz, Regulation in Transition, 104 Minn. L. Rev. 1, 3 (2019).Show More And the Supreme Court has chipped away at agency authority while warning of “a ruling class of largely unaccountable ‘ministers.’”30 30.See, e.g., West Virginia v. EPA, 142 S. Ct. 2587, 2617 (2022) (Gorsuch, J., concurring) (citation omitted) (“[T]he framers believed that a republic—a thing of the people—would be more likely to enact just laws than a regime administered by a ruling class of largely unaccountable ‘ministers.’” (citation omitted)); Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244, 2273 (2024) (overturning Chevron deference); Gillian E. Metzger, The Supreme Court, 2016 Term—Foreword: 1930s Redux: The Administrative State Under Siege, 131 Harv. L. Rev. 1, 3 (2017) (“Justice Thomas, with Chief Justice Roberts, Justice Alito, and now Justice Gorsuch sounding similar complaints, . . . have attacked the modern administrative state as a threat to liberty and democracy and suggested that its central features may be unconstitutional.”).Show More Private governance has not, however, provoked the same backlash, and a greater reliance on private employees to govern is less likely to violate the more restrictive principles of the Court’s recent cases shrinking administrative authority.31 31.Private governance actors have historically withstood due process and nondelegation challenges. Freeman, supra note 26, at 665. Although the legal standards for administrative agency authority are in flux, the main implication for this Article is that wherever the Supreme Court establishes the administrative authority boundaries, Congress will need to write and enforce employee enforcement rules accordingly. The recent cases adjusting the lines do not infringe on agencies’ ability to work with industry to implement whatever authority remains. For examples of cases restricting formal authority without infringing on agencies’ ability to rely on private actors, see, e.g., Biden v. Nebraska, 143 S. Ct. 2355, 2375 (2023) (striking down student loan forgiveness by applying the major questions doctrine to find the statute did not permit the Secretary of Education to make such modifications to the loan forgiveness program); Loper Bright, 144 S. Ct. at 2273 (overturning Chevron deference and requiring that Article III judges independently determine a statute’s best meaning).Show More Indeed, leaning more heavily into cultivating help from private employees could enable the administrative state to operate more forcefully despite judicial curtailment of its authority. Moreover, relying on core employees’ moral compasses to regulate responds to arguably the central critique of agencies: regulation infringes on private autonomy.32 32.See infra Part II.Show More After all, core employees are the heart of the private sector. Thus, increasing their ability to voluntarily enforce the law from within the corporation could strengthen the administrative state’s legitimacy in the eyes of some of its chief critics.

Corporations’ legitimacy crisis stems from perceptions that they are responsible for climate change, economic inequality, the erosion of democracy, and other major threats to the social fabric.33 33.See Marchand, supra note 26, at 2.Show More Yet Congress is too divided, too influenced by industry lobbying, and too poorly designed to provide regulatory agencies with sufficient power or pass all regulatory legislation that society needs to constrain harmful corporate conduct.34 34.Jonathan S. Gould & Rory Van Loo, Legislating for the Future, 92 U. Chi. L. Rev. 375, 386–88, 390 (2025); Robert G. Kaiser, Act of Congress: How America’s Essential Institution Works, and How It Doesn’t 127–41 (2013).Show More With public enforcement limited, private employees become more important for pushing corporations to follow the law. Moreover, although not the focus of this Article, if core employees gain power, some may succeed in pushing their firm to act above the environmental or social minimum.35 35.Employee advocacy beyond legal compliance has benefits and drawbacks that are beyond the scope of this Article. They include the potential economic benefits of addressing externalities and the potential costs of more difficult management. See infra Section III.B.Show More Private employees thus offer an option for filling part of the democracy gap between gridlocked legislatures and public preferences.

Several policy implications flow from this description of the private employee architecture at the center of public governance. Even if employee enforcers never push corporations beyond legal compliance, they are key to current reform efforts that aim to tackle some of the world’s most high-stakes problems. Once whistleblowers are recognized as the endgame of a larger regulatory apparatus within the corporation, supporting them becomes even more important because doing so heightens the consequences for corporate executives ignoring core employees. Support should not only include, but also exceed, the scholarly focus on protecting whistleblowers from retaliation. Ideally, ethical employees would be able to stay in the corporation to continue to guide it, rather than have to leave it as whistleblowers. Regulatory agencies should therefore build more confidential and easily accessible communication channels that core employees who are ignored within the corporation can use to communicate problems to an actor with public power.

A more ambitious reform would be to shift the societal norms for what it means to be an employee in a large corporation. If more private employees viewed themselves as having a public calling, it should increase the chances that they advocate for the public interest from within the corporation. It would be true to history and the modern regulatory architecture to view private employees as having both a private and a public calling. Viewed through a broader paradigm, employees within agencies and firms comprise an extensive administrative infrastructure that—if leveraged effectively—has the potential to move the private sector toward greater public service.

The Article begins in Part I with five examples of administrative agencies that have long sought to enlist private employees as enforcers: the SEC, the Federal Trade Commission (“FTC”), the Equal Employment Opportunity Commission (“EEOC”), the EPA, and agencies in heavily regulated industries. These agencies reveal the architecture of employee enforcers. Part II takes up normative questions about how to design the system of public-private agents to enhance the regulatory goals of effectiveness, efficiency, autonomy, and legitimacy. Part III turns to the policy question of how to strengthen the employee enforcement architecture. With more public power and purpose, private employees will be better positioned to take on the incredible responsibility that society has entrusted to them.

Before proceeding to the main discussion, a caveat is in order. Leveraging the employee enforcer is only one piece of the broader regulatory system. The discussion below should not be taken to suggest that regulation should rely as much as it does on private employees or can rely only on them. This Article is instead focused on how to maximize private employees. Other potential avenues for reform include providing more resources and power to administrative agencies, eliminating regulations that harm competition, and increasing liability to promote deterrence—many of which I have proposed elsewhere.36 36.See, e.g., Rory Van Loo, Making Innovation More Competitive: The Case of Fintech, 65 UCLA L. Rev. 232, 244 (2018) (criticizing the licensing barriers holding back fintech and consumer finance competition); Kathryn E. Spier & Rory Van Loo, Foundations for Platform Liability, 100 Notre Dame L. Rev. 1137, 1187 (2025) (proposing increased tech platform liability for third-party harms to consumers); Rory Van Loo, The Missing Regulatory State: Monitoring Businesses in an Age of Surveillance, 72 Vand. L. Rev. 1563, 1617 (2019) (“[P]olicymakers should consider building new monitoring programs for the increasingly digital economy.”); Dorothy S. Lund & Natasha Sarin, Corporate Crime and Punishment: An Empirical Study, 100 Tex. L. Rev. 285, 287–89, 292–94 (2021) (showing empirically the problem of insufficient penalties); J.S. Nelson, Paper Dragon Thieves, 105 Geo. L.J. 871, 872–73 (2017) (“When the behavior of these agents is coordinated to commit large-scale wrongdoing and to inflict damage on members of the public, the law should return to the traditional position of penalizing the behavior of the agents as individuals.”); Kaiser, supra note 34, at 127–41 (explaining the influence of industry lobbying on legislation).Show More When major regulatory reform opportunities arrive, the statutory blueprint tends not to limit itself to simply one regulatory tool.37 37.Kaiser, supra note 34, at 378–80.Show More Reforms related to employee enforcers are complementary to other reforms, and producing the most robust regulatory system possible requires getting all of its components right. Whether from Congress, the president, state governments, or the private sector, future regulatory reforms should include a more comprehensive view of how to best leverage employee enforcers. It is hard to imagine an effective regulatory architecture in the future without substantial involvement, if not leadership, by frontline employees throughout the corporate sector.

  1.  Jonathan P. West & James S. Bowman, Whistleblowing Policies in American States: A Nationwide Analysis, 50 Am. Rev. Pub. Admin. 119, 120 (2020). ↑

  2.  John Carreyrou, Bad Blood: Secrets and Lies in a Silicon Valley Startup

    195, 281–82 (2018). ↑

  3.  See, e.g., J.S. Nelson, Disclosure-Driven Crime, 52 U.C. Davis L. Rev
    .

    1487, 1498, 1533 (2019); Leslie Scism, Prudential Fires Back Against Three Former Employees, Wall St. J., htt‌ps://www.wsj.com/articles/prudential-fires-back-against-three-former-employees-1485437572 (last updated Jan. 26, 2017, at 14:44 ET). ↑

  4.  See Hillary A. Sale, Monitoring Facebook, 12 Harv. Bus. L. Rev
    .

    439, 441 (2022). ↑

  5.  See infra Part I. ↑
  6.  See infra Section II.A. Reporting such misconduct internally is more organizationally acceptable because doing so arguably increases shareholder wealth. This means that the conduct upholds shareholder primacy—the influential norm that corporations should prioritize maximizing shareholder wealth. See, e.g., Donald C. Langevoort, The Effects of Shareholder Primacy, Publicness, and “Privateness” on Corporate Cultures, 43 Seattle U. L. Rev. 377, 382–84 (2020) (summarizing the origins and influence of shareholder primacy and linking it to compliance). ↑
  7.  Aaron S. Kesselheim, David M. Studdert & Michelle M. Mello, Whistle-Blowers’ Experiences in Fraud Litigation Against Pharmaceutical Companies, 362 NEJM

    1832, 1836 (2010) (describing the resulting personal toll of whistleblowing). In select areas with strong whistleblower protections, however, whistleblowers fare better. See infra Section III.A. ↑

  8.  See Tom Devine & Tarek F. Maassarani, Gov’t Accountability Project, The Corporate Whistleblower’s Survival Guide: A Handbook for Committing the Truth 18 (2011); see also C. Fred Alford, Whistleblowers: Broken Lives and Organizational Power
    1

    (2001) (“[One whistleblower] put it this way: . . . ‘I stood up against the big corporation and I lost. I didn’t just lose my job. I lost my house, and then I lost my family.’”). In one study of False Claims Act lawsuits, employers retaliated against the employees in the vast majority of all cases. Aiyesha Dey, Jonas Heese & Gerardo Pérez-Cavazos, Cash-for-Information Whistleblower Programs: Effects on Whistleblowing and Consequences for Whistleblowers, 59 J. Acct. Rsch. 1689, 1692 (2021). ↑

  9.  See infra Subsection III.A.1. ↑
  10.  Rory Van Loo, Regulatory Monitors: Policing Firms in the Compliance Era, 119 Colum. L. Rev. 369, 369 (2019). ↑
  11.  See infra Section I.A (showing how large regulators have sought to enlist the help of corporate employees for decades). For data on the number of law-related personnel in the private sector, see William S. Laufer, A Very Special Regulatory Milestone, 20 U. Pa. J. Bus. L. 392, 393–94 (2017) (“There soon will be as many enterprise-wide risk, audit, legal, and compliance professionals on the payroll of corporations in the United States as municipal police officers keeping our streets safe.”). Since Laufer’s estimate that the two figures were close, the number of compliance officers alone has increased by over forty percent, while the number of police officers has decreased by nearly two percent. See id. at 393 n.1 (citing Press Release, Bureau of Lab. Stat., U.S. Dep’t of Lab., Occupational Employment and Wages—May 2016 (Mar. 31, 2017) [hereinafter 2016 Employment and Wages Press Release], https://w‌ww.bls.gov/news.release/archives/ocwage_03312017.pdf [https://perma.cc/Z9ZD-BQFU]) (providing a 2016 estimate for compliance officers as 273,000); Bureau of Lab. Stat., U.S. Dep’t of Lab., Occupational Employment and Wages, May 2023: 13-1041 Compliance Officers, https://www.bls.gov/oes/2023/may/oes131041.htm [https://perma.cc/FF27-2ZZS] (last updated Apr. 3, 2024) (providing a 2023 estimate for compliance officers as 383,620); 2016 Employment and Wages Press Release, supra (putting a 2016 police and sheriff’s patrol officer estimate at 657,690); Bureau of Lab. Stat., U.S. Dep’t of Lab., Occupational Employment and Wages, May 2023: 33-3051 Police and Sheriff’s Patrol Officers, https://ww‌w.bls.gov/oes/2023/may/oes333051.htm [https://perma.cc/BX4B-BLZB] (last updated Apr. 3, 2024)

    (reporting a 2023 police and sheriff’s patrol officer estimate of 646,310). ↑

  12.  See infra Part II. These are not mutually exclusive categories in the sense that both law-related employees and core employees can become whistleblowers. ↑
  13.  See infra Part I. ↑
  14.  See infra Part I. ↑
  15.  Elizabeth Magill & Adrian Vermeule, Allocating Power Within Agencies, 120 Yale L.J. 1032, 1035 (2011). ↑
  16.  Van Loo, supra note 10 (chronicling “the statutory rise of regulatory monitors . . . to situate them empirically at the core of modern administrative power”). ↑
  17.  Magill & Vermeule, supra note 15, at 1032 (“Standard questions in the theory of administrative law involve the allocation of power among legislatures, courts, the President, and various types of agencies.”). ↑
  18.  The “religion” of privatization has sometimes drawn administrative and constitutional law scholars to examine businesses more closely. Martha Minow, Public and Private Partnerships: Accounting for the New Religion, 116 Harv. L. Rev. 1229, 1229–30, 1247 (2003). Privatization, however, concerns the government moving traditionally public services, like operating prisons, toward private businesses. Id. at 1229–30. Of greater relevance is the early literature identifying a panoply of regulatory models, including a new governance era in which agencies and firms collaborate to solve problems rather than act as adversaries, which provides valuable foundations for the agency-firm connection on which this Article builds. See, e.g., Cary Coglianese & David Lazer, Management-Based Regulation: Prescribing Private Management to Achieve Public Goals
    , 37

    Law & Soc’y Rev. 691, 725 (2003) (analyzing a regulatory model in which government “regulators outline criteria for private sector planning and conduct varying degrees of oversight to ensure that firms are engaging in effective planning and implementation that satisfies the stated criteria”); Jody Freeman, Collaborative Governance in the Administrative State, 45 UCLA L. Rev. 1, 30 (1997); Ian Ayres & John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate 4–7 (Donald R. Harris, Keith Hawkins, Sally Lloyd-Bostock & Doreen McBarnet eds., 1992); Orly Lobel, The Renew Deal: The Fall of Regulation and the Rise of Governance in Contemporary Legal Thought, 89 Minn. L. Rev

    .

    342, 345–47, 376–78 (2004). Finally, scholars have increasingly examined agencies’ intersections with firms’ compliance officers. See Nicholas R. Parrillo, Federal Agency Guidance and the Power to Bind: An Empirical Study of Agencies and Industries, 36 Yale J. on Reg. 165, 204–05, 271 (2019) (concluding that compliance officers sometimes implement agency guidance). Compliance officers are, however, merely one subset of employee enforcers. See infra Section I.B. ↑

  19.  Michele DeStefano, Creating a Culture of Compliance: Why Departmentalization May Not Be the Answer, 10 Hastings Bus. L.J. 71, 72 (2014) (“What might have been thought of twenty years ago as a basic corporate governance function is now being ceded to compliance departments.” (footnote omitted)); id. at 74–75; James A. Fanto, Surveillant and Counselor: A Reorientation in Compliance for Broker-Dealers, 2014 BYU L. Rev. 1121, 1139–42, 1163–67; Donald C. Langevoort, Cultures of Compliance, 54 Am. Crim. L. Rev. 933, 940–41 (2017). ↑
  20.  See infra Part I. ↑
  21.  See, e.g., Miriam Hechler Baer, Governing Corporate Compliance, 50 B.C. L. Rev. 949, 959 (2009) (focusing on the DOJ and, to a lesser extent, the SEC). ↑
  22.  See Van Loo, supra note 10, at 373–74, 435 (demonstrating the centrality of monitors to regulatory agencies and linking them to compliance departments). ↑
  23.  For an important account of ESG and its limits, see Dorothy S. Lund & Elizabeth Pollman, The Corporate Governance Machine, 121 Colum. L. Rev. 2563, 2563, 2566, 2615 (2021). Although certainly of a similar spirit, scholarly calls for reforming shareholder primacy tend to see core employees mostly as beneficiaries of reforms rather than, as this Article does, central actors bringing about societal change. See, e.g., Oliver Hart & Luigi Zingales, The New Corporate Governance, 1 U. Chi. Bus. L. Rev. 195, 196–97 (2022) (calling for “shareholder welfare maximization” to replace “shareholder value maximization” as the guiding norm for the corporation (emphasis omitted)). ↑
  24.  Jennifer S. Fan, Employees as Regulators: The New Private Ordering in High Technology Companies, 2019 Utah L. Rev. 973, 1026. ↑
  25.  Hannah Bloch-Wehba, Algorithmic Governance from the Bottom Up, 48 BYU L. Rev. 69, 69 (2022). ↑
  26.  This is not a new issue for either field. See Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543, 545 (2000) (“Since the New Deal explosion of government agencies, administrative law has been defined by the crisis of legitimacy and the problem of agency discretion.”); Roland Marchand, Creating the Corporate Soul: The Rise of Public Relations and Corporate Imagery in American Big Business 2 (1998) (“[M]ajor corporations expanded at a bewildering pace at the end of the nineteenth century . . . . This momentous shift in the balance of social forces created a crisis of legitimacy for the large corporations.”). ↑
  27.  David L. Noll, Administrative Sabotage, 120 Mich. L. Rev. 753, 753 (2022). ↑
  28.  Jody Freeman & Sharon Jacobs, Structural Deregulation, 135 Harv. L. Rev. 585, 586, 588 (2021). ↑
  29.  Bethany A. Davis Noll & Richard L. Revesz, Regulation in Transition, 104 Minn. L. Rev. 1, 3 (2019). ↑
  30.  See, e.g., West Virginia v. EPA, 142 S. Ct. 2587, 2617 (2022) (Gorsuch, J., concurring) (citation omitted) (“[T]he framers believed that a republic—a thing of the people—would be more likely to enact just laws than a regime administered by a ruling class of largely unaccountable ‘ministers.’” (citation omitted)); Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244, 2273 (2024) (overturning Chevron deference); Gillian E. Metzger, The Supreme Court, 2016 Term—Foreword: 1930s Redux: The Administrative State Under Siege, 131 Harv. L. Rev. 1, 3 (2017) (“Justice Thomas, with Chief Justice Roberts, Justice Alito, and now Justice Gorsuch sounding similar complaints, . . . have attacked the modern administrative state as a threat to liberty and democracy and suggested that its central features may be unconstitutional.”). ↑
  31.  Private governance actors have historically withstood due process and nondelegation challenges. Freeman, supra note 26, at 665. Although the legal standards for administrative agency authority are in flux, the main implication for this Article is that wherever the Supreme Court establishes the administrative authority boundaries, Congress will need to write and enforce employee enforcement rules accordingly. The recent cases adjusting the lines do not infringe on agencies’ ability to work with industry to implement whatever authority remains. For examples of cases restricting formal authority without infringing on agencies’ ability to rely on private actors, see, e.g., Biden v. Nebraska, 143 S. Ct. 2355, 2375 (2023) (striking down student loan forgiveness by applying the major questions doctrine to find the statute did not permit the Secretary of Education to make such modifications to the loan forgiveness program); Loper Bright, 144 S. Ct. at 2273 (overturning Chevron deference and requiring that Article III judges independently determine a statute’s best meaning). ↑
  32.  See infra Part II. ↑
  33.  See Marchand, supra note 26, at 2. ↑
  34.  Jonathan S. Gould & Rory Van Loo, Legislating for the Future, 92 U. Chi. L. Rev. 375, 386–88, 390 (2025); Robert G. Kaiser, Act of Congress: How America’s Essential Institution Works, and How It Doesn’t 127–41 (2013). ↑
  35.  Employee advocacy beyond legal compliance has benefits and drawbacks that are beyond the scope of this Article. They include the potential economic benefits of addressing externalities and the potential costs of more difficult management. See infra Section III.B. ↑
  36.  See, e.g., Rory Van Loo, Making Innovation More Competitive: The Case of Fintech, 65 UCLA L. Rev. 232, 244 (2018) (criticizing the licensing barriers holding back fintech and consumer finance competition); Kathryn E. Spier & Rory Van Loo, Foundations for Platform Liability, 100 Notre Dame L. Rev. 1137, 1187 (2025) (proposing increased tech platform liability for third-party harms to consumers); Rory Van Loo, The Missing Regulatory State: Monitoring Businesses in an Age of Surveillance, 72 Vand. L. Rev. 1563, 1617 (2019) (“[P]olicymakers should consider building new monitoring programs for the increasingly digital economy.”); Dorothy S. Lund & Natasha Sarin, Corporate Crime and Punishment: An Empirical Study, 100 Tex. L. Rev.
    285, 287

    –

    89, 292–94

    (2021) (showing empirically the problem of insufficient penalties); J.S. Nelson, Paper Dragon Thieves, 105 Geo. L.J. 871, 872–73 (2017) (“When the behavior of these agents is coordinated to commit large-scale wrongdoing and to inflict damage on members of the public, the law should return to the traditional position of penalizing the behavior of the agents as individuals.”); Kaiser

    ,

    supra note 34, at 127–41 (explaining the influence of industry lobbying on legislation). ↑

  37.  Kaiser
    ,

    supra note 34, at 378–80. ↑

Oligopoly Squared: Federalism and the New Legal Landscape Tackling the Dark Web of Drug Pricing

The pharmaceutical industry’s billion-dollar practice of inflating drug prices and shielding itself from accountability has brought immense public outcry and inspired a profusion of legal reforms. But the precise dynamics that enable this ongoing crisis remain obscure, impeding effective resolution. This Article examines the interplay between legislative, regulatory, and new governance approaches emerging at both the federal and state levels. It exposes how a seemingly singular problem of high drug costs unfolds as a complex series of mergers, collusions, and restrictive strategies throughout the healthcare supply chain.

The poster child of big pharma greed is insulin, the lifesaving drug of diabetics. This Article presents insulin as a case study in analyzing how a drug discovered long ago evolved, through product hopping and patent evergreening, into multiple brand-name products still under patent. It further illustrates how market concentration in each link of the drug delivery chain has substantially increased with impunity, spanning from big pharma to pharmacy benefit management (“PBM”) intermediaries that broker deals between drug manufacturers, insurers, and pharmacies. The compounding effects of horizontal and vertical integration of powerful industry actors—what this Article calls “oligopoly squared”—have enabled collusive deals, including formulary exclusion, secret rebates, spread pricing, and preferred pharmacy status, each designed to artificially inflate insulin prices.

Moving from the expository and descriptive to the analytical and prescriptive, this Article then presents an equally multifaceted framework to address these harmful effects, combining cost control and transparency laws, PBM regulation, patent law and U.S. Food and Drug Administration generics approval reforms, and antitrust enforcement. This Article explains why federal law should not be interpreted as preempting state regulation of pharmaceutical supply chains. This Article further analyzes efforts using cutting-edge theories of competition law in light of broader recent developments in adjudicating market power and collusion. Most importantly, this Article examines the newest approaches emerging in the landscape of market and legal levers—direct-to-consumer transparent pharmacies and the public production of drugs—and argues that these new governance models have the greatest potential to disrupt the concentrated market. By analyzing and integrating these diverse efforts through the lens of legal theory and practical impact, this Article not only charts the course of pharmaceutical drug industry reform but also offers broader implications for regulating complex industries.

Introduction

Escalating prescription drug prices have sparked an unprecedented wave of law and policy initiatives, with numerous lawsuits and legislative reforms emerging at both the federal and state levels. These efforts aim to tackle not only the exorbitant cost of prescription medications but also the opaque and entrenched practices in each link of a complex drug delivery chain.1 1.See infra Parts III–IV.Show More

The sheer scope and diversity of new legal reforms—spanning price controls, transparency mandates, patent law and generic drug approval reforms, antitrust enforcement, and, most recently, public drug production and direct-to-patient delivery—signal a seismic shift in the understanding of how legal frameworks can be deployed to disrupt concentrated markets and protect consumers. The breadth of legal actions provides a model for studying competition and industry regulation more broadly. This Article analyzes the contemporary momentum in which policymakers simultaneously leverage legislation, regulation, litigation, and market strategies to tackle a billion-dollar industry’s harmful practices. It shows how myriad efforts to directly regulate drug prices have stalled, proven ineffective, or been challenged in courts, including in a current case in which the Supreme Court recently denied certiorari.2 2.Pharm. Care Mgmt. Ass’n v. Mulready, 78 F.4th 1183 (10th Cir. 2023), cert. denied, 145 S. Ct. 2843 (2025) (mem.).Show More Analyzing the split circuit adjudication on federal preemption of such state reforms, this Article argues that the Court should have resolved the split by holding that state regulation of pharmaceutical supply chains is not preempted by federal law. The complex structure of the pharmaceutical industry presents a test case wherein federalism offers opportunities for democratic experimentalism and new multilevel governance reforms.3 3.On new governance theory and practice, see Orly Lobel, The Renew Deal: The Fall of Regulation and the Rise of Governance in Contemporary Legal Thought, 89 Minn. L. Rev. 342, 404–07 (2004) [hereinafter Lobel, The Renew Deal] (describing the paradigm shift in legal process from command and control to more collaborative participatory regulation); Orly Lobel, New Governance as Regulatory Governance, in The Oxford Handbook of Governance 65, 65 (David Levi-Faur ed., 2012) (explaining how new governance theory provides lessons for government and market stakeholders on how to collaborate toward shared goals); Orly Lobel, National Regulation in a Global Economy: New Governance Approaches to 21st Century Work Law, in 2 Labor and Employment Law and Economics 630, 640–41 (Kenneth G. Dau-Schmidt, Seth D. Harris & Orly Lobel eds., 2009) (applying new governance theory to workplace regulation); Orly Lobel, Setting the Agenda for New Governance Research, 89 Minn. L. Rev. 498, 499–502 (2004) (describing next steps in the developments of new governance theory and practice).Show More Preemption should be narrowly tailored to allow state laws designed to protect patients and enhance consumer welfare. Even more critically, this Article argues that the novel path of public drug manufacturing and delivery is an essential lever to directly disrupt this complex concentrated market.

Insulin is the poster child for high drug costs in the United States. Insulin prices in the United States have spiked shockingly high compared to those in other developed countries.4 4.Andrew W. Mulcahy & Daniel Schwam, RAND Corp., Comparing Insulin Prices in the United States to Other Countries 17 (2024) (“Compared with other countries, and in each insulin category, the United States had dramatically higher gross prices. The average U.S. manufacturer price per 100 IUs across all insulins was $22.68, compared with $3.75 in Canada, $2.20 in the United Kingdom, $2.79 in Mexico, and $2.37 across all non-U.S. OECD countries combined . . . .”).Show More A 2024 RAND report found that the price of insulin in the United States is more than nine times higher than the price of insulin in thirty-three comparison nations combined.5 5.Id. at v.Show More Even when accounting for rebates and discounts, U.S. net prices are still, on average, 2.3 times higher than those in other countries.6 6.Id.Show More Examining insulin as a case study for addressing skyrocketing drug prices reveals the need for the multifaceted framework presented in this Article. There are three manufacturers who make nearly all insulin sold in the United States: Eli Lilly, Novo Nordisk, and Sanofi.7 7.Judith A. Johnson, Cong. Rsch. Serv., IF11026, Insulin Products and the Cost of Diabetes Treatment 2 (2018).Show More These three dominant pharmaceutical manufacturers frequently engage in practices like product hopping and patent evergreening whereby they introduce slightly modified versions of brand-name drugs—often just before patent expiration—and aggressively market them to shift patients to the newly patented formulations.8 8.See infra Part I.Show More Although insulin was discovered more than a century ago, these practices prevent generic drugs from entering the market and competing with lower drug prices. Still, if drug manufacturers alone were engaging in anticompetitive tactics, reforming intellectual property law and generic drug approval could be a straightforward and effective solution. Unfortunately, the reality is far more complex. The American insulin industry is not simply an oligopoly; it represents what this Article terms an “oligopoly squared” market—the compounded effect of both market consolidation and restrictive tactics across complex supply chains.

Big pharma colludes with another highly concentrated industry that has largely operated under the radar: pharmacy benefit managers (“PBMs”).9 9.See infra Section II.B.Show More PBMs, while surprisingly understudied in legal scholarship, are the powerful middlemen who shape prescription drug delivery.10 10.See infra Section II.B.Show More PBMs determine formularies, the lists that dictate the prescription drugs that a health insurance plan covers.11 11.See infra Section II.B.Show More Three PBMs—CVS Caremark, Express Scripts, and Optum Rx—control this key intermediary role in the market.12 12.See Adam J. Fein, The Top Pharmacy Benefit Managers of 2024: Market Share and Key Industry Developments, Drug Channels Inst. (Mar. 31, 2025), https://www.drugchannels.net/2‌025/03/the-top-pharmacy-benefit-managers-of.html [https://perma.cc/XY38-T4BH] (“[Drug Channels Institute] estimates that for 2024, about 80% of all equivalent prescription claims were processed by three companies: the Caremark business of CVS Health, the Express Scripts business of Cigna, and the Optum Rx business of UnitedHealth Group.”).Show More The three lead manufacturers of insulin control more than ninety percent of the drug by value globally, and three PBMs control more than eighty percent of the prescription-management market.13 13.Claudia Martínez, Camille Romero & Natalia Sánchez Villalobos, Access to Med. Found., What Are Pharma Companies Doing to Expand Access to Insulin—and How Can Efforts Be Scaled Up? 4 (2022); Off. of Pol’y Plan., U.S. Fed. Trade Comm’n, Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies 2 (2024). The six largest PBMs manage nearly ninety-five percent of all prescriptions filled in the United States. Id. at 5.Show More Furthermore, for decades, PBMs have been engaging in both vertical and horizontal integration, further concentrating the market by purchasing other key players in the healthcare supply chain, including pharmacies and health insurance providers.14 14.See discussion infra Section II.D.Show More As this Article illustrates, the combined oligopolistic structure of the industry, alongside the complex regulatory scheme for pharmaceuticals and health care, has enabled the three leading insulin producers and three dominant PBM players to exploit legal loopholes, manipulate markets, and broker collusive deals, all while aggressively and continuously increasing the price of insulin and other drugs.

Public outcry over insulin prices has prompted congressional hearings, legislative and regulatory action, and pending litigation at both the state and federal levels. At the federal level, Congress enacted the Inflation Reduction Act of 2022, empowering Medicare to negotiate drug prices and capping out-of-pocket insulin costs at thirty-five dollars per month for Medicare patients.15 15.Bisma A. Sayed et al., Off. of the Assistant Sec’y for Plan. & Evaluation, U.S. Dep’t of Health & Hum. Servs., Insulin Affordability and the Inflation Reduction Act: Medicare Beneficiary Savings by State and Demographics 1 (2023), https://aspe.hhs.gov/sites/default/fil‌es/documents/bd5568fa0e8a59c2225b2e0b93d5ae5b/aspe-insulin-affordibility-datapoint.pdf [https://perma.cc/TL9A-QWJU]; Tami Luhby, More Americans Can Now Get Insulin for $35, CNN, https://www.cnn.com/2024/01/01/politics/insulin-price-cap/index.html [https://perma.‌cc/6TAR-FBEV] (last updated Jan. 2, 2024, 5:34 PM); Jay-Donavin Ved, The Inflation Reduction Act of 2022: Addressing Prescription Drug Coverage, 32 Annals Health L. Advance Directive 131, 131 (2023).Show More In 2024 alone, dozens of new bills were introduced in Congress to address the high costs of pharmaceutical drugs.16 16.See infra Part III.Show More A 2025 bipartisan bill, the Patients Over Profit Act, seeks to prevent the increasing vertical integration in health care, where insurance companies acquire provider practices, labs, specialty practices, and outpatient clinics—although in its current form, the bill leaves intact the consolidation between PBMs and pharmacies.17 17.Patients Over Profit Act, S. 2836, 119th Cong. (2025).Show More At the state level, this Article produces an original, comprehensive, and up-to-date mapping of the twenty-nine states, plus the District of Columbia, that have passed legislation to cap insulin prices, analyzing the potential benefits and risks of such direct price controls.18 18.See infra Section III.B, Figure IV, Table I.Show More Over the past few years, each of the fifty states has also enacted legislation to tackle the PBMs’ behaviors, through measures such as prohibiting PBMs’ exclusion of nonaffiliated pharmacies from health plans.19 19.T. Joseph Mattingly II, Maisie Lewis, Mariana P. Socal & Ge Bai, State-Level Policy Efforts to Regulate Pharmacy Benefit Managers (PBMs), 18 Rsch. Soc. & Admin. Pharmacy 3995, 3995, 3999 (2022).Show More The validity of these state reforms is uncertain in light of a circuit split regarding whether they are preempted by federal law. Moreover, in the past few years, and accelerating in 2024, state attorneys general across the country, as well as the Federal Trade Commission (“FTC”), have filed lawsuits against the major insulin manufacturers and PBMs, alleging anticompetitive practices and price-fixing.20 20.Many of these actions—including those by Arkansas, Illinois, Kansas, Mississippi, Montana, California, Louisiana, Puerto Rico, Hawaii, Arizona, Texas, Utah, Missouri, as well as by unions and local governments—have been consolidated. Docket, In re Insulin Pricing Litig., No. 3080 (J.P.M.L. May 9, 2023). The FTC filed its own complaint against PBMs, alleging violation of Section 5 of the FTC Act, 15 U.S.C. § 45, in September 2024. Complaint, In re Caremark Rx, LLC, No. 9437 (F.T.C. Sept. 20, 2024) [hereinafter FTC Complaint]. Class actions have also been filed by patients against insurers for paying PBMs inflated drug costs. Daniel Wiessner, Wells Fargo Sued Over Employee Prescription Drug Costs, Reuters (July 30, 2024), https://www.reuters.com/legal/wells-fargo-sued-over-employee-prescription-drug-costs-2024-07-30/ [https://perma.cc/7MM5-VF5N].Show More In 2023, those states filed In re Insulin Pricing Litigation, the consolidated multidistrict litigation centering on the allegations that major insulin manufacturers—such as Eli Lilly, Novo Nordisk, and Sanofi—colluded with PBMs—like CVS Caremark, Express Scripts, and Optum Rx—to artificially and fraudulently inflate the price of insulin.21 21.First Amended Complaint at 6, Arkansas ex rel. Rutledge v. Eli Lilly & Co., No. 22-cv-00549 (E.D. Ark. Aug. 8, 2022); Complaint at 6, Illinois ex rel. Raoul v. Eli Lilly & Co., No. 2022CH11699 (Ill. Cir. Ct. Dec. 2, 2022); Petition at 6, Kansas ex rel. Schmidt v. Eli Lilly & Co., No. 2022-cv-000735 (Kan. Dist. Ct. Dec. 2, 2022); Third Amended Complaint at 5, Mississippi ex rel. Fitch v. Eli Lilly & Co., No. 21-cv-00674 (S.D. Miss. Feb. 17, 2022).Show More Since 2023, the number of states in the multistate litigation has grown to include seventeen U.S. states and territories.22 22.These states and territories are Arizona, Arkansas, California, Hawaii, Illinois, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Ohio, Pennsylvania, Puerto Rico, Texas, Utah, and West Virginia. Docket, In re Insulin Pricing Litig., No. 3080.Show More Drawing on antitrust principles, this Article presents the first scholarly analysis of this sea of new lawsuits and contends that the pharmaceutical companies and pharmacy managers have conspired to artificially inflate drug prices, thereby exploiting the vulnerability of millions of patients.

California’s approach to high insulin prices is broader than most state reforms, the majority of which have focused solely on direct price controls. California’s legislation to cap the price of insulin was initially vetoed by Governor Gavin Newsom, though such caps were enacted in 2025.23 23.See Lexington Souers, State Legislation Provides Hope for Rising Insulin Costs, Council of State Gov’ts (Mar. 31, 2023), https://www.csg.org/2023/03/31/state-legislation-provides-h‌ope-for-rising-insulin-costs/ [https://perma.cc/6R4D-7937] (contrasting the legislation that Governor Newsom initially vetoed with insulin price cap legislation in eleven other states); Jess Berthold, CA Governor Just Vetoed Price Caps on Insulin. Now What?, Univ. of Cal. S.F. (Oct. 11, 2023), https://www.ucsf.edu/news/2023/10/426351/ca-governor-just-vetoed-pri‌ce-caps-insulin-now-what [https://perma.cc/8MPV-MT6D] (explaining California’s alternative plan to produce its own insulin for thirty dollars per vial); see also infra note 237 (detailing California’s newly enacted insulin price cap legislation).Show More In the wake of Newsom’s original veto, the state instead enacted a revolutionary state-produced insulin initiative. In 2023, California announced a contract with a nonprofit drugmaker, Civica Rx, to produce government-funded, affordable insulin. Named CalRx, the public program aims to develop, produce, and distribute generic drugs at low costs, starting with insulin.24 24.S.B. 852, 2020 Leg., Reg. Sess. (Cal. 2020).Show More This novel approach to public drug production has the potential to disrupt not just the diabetes medication market, but healthcare delivery more broadly. The next drug on the agenda is naloxone, a drug used to reverse opioid overdoses that the U.S. Food and Drug Administration (“FDA”) recently approved as an over-the-counter generic.25 25.Lynn La, California Will Buy Cheaper Naloxone to Stop Fentanyl Deaths, CalMatters (Apr. 30, 2024), https://calmatters.org/newsletter/california-fentanyl-deaths-naloxone/ [https:‌//perma.cc/KS48-3QPT]; see also Kristen Hwang, Newsom Committed California to Making Its Own Insulin. It’s at Least a Year Behind His Schedule, CalMatters (Jan. 15, 2025), https://c‌almatters.org/health/2025/01/insulin-production-gavin-newsom/ [https://perma.cc/K9FR-N‌X92] (detailing the ties between the state’s efforts to make both insulin and naloxone more affordable).Show More Other states, as well as a federal bill, are looking to emulate this public intervention. In parallel, market initiatives such as Transparency-Rx and Mark Cuban’s Cost Plus are emerging to bypass the dominant PBMs and directly disrupt the concentrated market of drug delivery.26 26.See infra Section V.A.Show More

The high cost of insulin and other essential medications is often framed as a straightforward, single-issue problem: drug prices are simply inflated by their sellers.27 27.See, e.g., Lev Facher, It’s the Insulin, Stupid: How Drug Pricing’s Simplest Case Study Became a Top Issue for 2020 Democrats, STAT News (Jan. 28, 2020), https://www.statnews.c‌om/2020/01/28/insulin-pricing-becomes-top-issue-for-democrats [https://perma.cc/GB8L-E‌VKQ] (“Even in a primary dominated by broader health care issues, insulin has emerged as particularly alluring campaign fodder for Democrats. Unlike more perplexing topics like health insurance reform or the cost of drug research, candidates have a plain and simple rallying cry for insulin: That it’s corporate profiteering.”).Show More However, this reductive view obscures the intricate web of market dynamics and regulatory vulnerabilities that sustain and exacerbate the crisis. The source of the illness lies in the inscrutable structures of the pharmaceutical market, characterized by concentrated but convoluted supply chains, opaque pricing mechanisms, and a labyrinth of middlemen whose incentives are misaligned with public health goals. This Article explains how the compounded structure of multiple oligopolies enables actors to leverage legal loopholes, exploit patent laws, and engage in explicit and tacit collusions that further entrench market dominance and stifle competition. What appears to be a straightforward economic issue is, upon closer examination, a systemic pathology supported by an inadequate legal landscape. This Article argues that it is precisely the reality of oligopoly squared that has resisted traditional regulation. Most importantly, by offering a rigorous analysis of the new legal landscape, this Article explains the comparative advantages and interplay between federal and state law and policy, uncovering why complex market structures require an antidote of equally robust legal innovation.

This Article makes three major contributions. First, it demonstrates that the high cost of drugs is not the result of a single problem but instead has emerged through a series of anticompetitive practices throughout the healthcare industry. Mining through the profusion of new congressional reports, governmental investigations, lawsuits, and interdisciplinary research, this Article presents the multiple ways in which key actors in the pharmaceutical supply chain engage in anticompetitive and unfair business practices that artificially inflate the costs of prescription drugs.

This Article’s second contribution is its timely, novel analysis of the ongoing court challenges to state law reforms aiming to address healthcare industry anticompetitive practices. In 2025, the Supreme Court denied a petition to help resolve Pharmaceutical Care Management Ass’n v. Mulready.28 28.78 F.4th 1183 (10th Cir. 2023).Show More The case presented the Court with a circuit split on whether state laws regulating PBMs are preempted by the federal Employee Retirement Income Security Act (“ERISA”) and Medicare Part D. The circuit decision was also in tension with a recent Supreme Court case, Rutledge v. Pharmaceutical Care Management Ass’n, wherein the Court unanimously upheld a state law regulating PBMs.29 29.141 S. Ct. 474 (2020).Show More Through an analysis of the preemption issues and long-standing case law balancing uniformity and federalism, this Article explains why the Court should have granted certiorari and ruled that the states clearly have the authority to regulate PBMs.

Third, this Article shows how the perfect storm of public outcry, new state and federal legislation, and escalating court battles presents a unique opportunity to study the comparative advantages of and interactions between legal approaches: legislative, regulatory, adjudicative, and public-private governance.30 30.On public-private governance theory and practice, see Lobel, The Renew Deal, supra note 3, at 344–45.Show More In particular, it classifies the law reforms into three emerging frontiers: (1) reforming patent law and drug approval regulations to prevent product hopping and encourage generic competition, as well as direct price caps and price transparency; (2) preventing horizontal and vertical collusions in the drug delivery chain, including by addressing the role of PBMs in brokering unfair formulary and rebate deals systems; and (3) launching innovative models for drug production and distribution, including transparent pharmacies and public manufacturing initiatives. This Article argues that among the many paths of law reform, the third category has the most revolutionary potential.

This Article proceeds in five parts. Part I presents insulin as a prominent example of a drug that was discovered long ago and has evolved into a variety of brand-name products that are still patented today because of big pharma’s manipulative product hopping and patent evergreening practices. Part II turns to the structure of the pharmaceutical and pharmacy benefit management markets, explaining how market concentration is compounded when each link in the drug delivery chain is dominated by powerful actors. It further describes the collusive practices among these actors that artificially inflate drug prices, including formulary exclusion, rebates, spread pricing, convoluted fees, and preferred pharmacy status. Part III documents and classifies the recent law reforms at both the state and federal levels, including cost control and cost transparency laws, PBM regulation, and antitrust lawsuits. This Part also analyzes the split circuit case law on federal preemption and argues that such preemption should be narrowly tailored to allow for democratic experimentalism. Part IV examines the dozens of new lawsuits by state attorneys general and the FTC that use antitrust and unfair competition law to put a stop to the range of collusive practices and deals between pharmaceutical manufacturers and PBMs. This Part analyzes frontiers of competition law and doctrine in relation to new enforcement efforts. Finally, Part V introduces the most novel approaches emerging in the landscape of market and legal levers: alternative public production and delivery of drugs.

The interplay between market realities and legal innovation described in this Article comes at a pivotal moment in the evolution of healthcare governance. This Article concludes by arguing that the emerging framework lends itself to examining more broadly the rich landscape of legal levers on consumer welfare, equitable access, and market competition. By analyzing this breadth of efforts through the lens of legal theory and practical impact, this Article aims not only to chart the course for pharmaceutical drug industry reforms, but also to explore broader implications for regulating complex concentrated industries.

  1.  See infra Parts III–IV. ↑
  2.  Pharm. Care Mgmt. Ass’n v. Mulready, 78 F.4th 1183 (10th Cir. 2023), cert. denied, 145 S. Ct. 2843 (2025) (mem.). ↑
  3.  On new governance theory and practice, see Orly Lobel, The Renew Deal: The Fall of Regulation and the Rise of Governance in Contemporary Legal Thought, 89 Minn. L. Rev. 342, 404–07 (2004) [hereinafter Lobel, The Renew Deal] (describing the paradigm shift in legal process from command and control to more collaborative participatory regulation); Orly Lobel, New Governance as Regulatory Governance, in The Oxford Handbook of Governance 65, 65 (David Levi-Faur ed., 2012) (explaining how new governance theory provides lessons for government and market stakeholders on how to collaborate toward shared goals); Orly Lobel, National Regulation in a Global Economy: New Governance Approaches to 21st Century Work Law, in 2 Labor and Employment Law and Economics 630, 640–41 (Kenneth G. Dau-Schmidt, Seth D. Harris & Orly Lobel eds., 2009) (applying new governance theory to workplace regulation); Orly Lobel, Setting the Agenda for New Governance Research, 89 Minn. L. Rev. 498, 499–502 (2004) (describing next steps in the developments of new governance theory and practice). ↑
  4.  Andrew W. Mulcahy & Daniel Schwam, RAND Corp., Comparing Insulin Prices in the United States to Other Countries 17 (2024) (“Compared with other countries, and in each insulin category, the United States had dramatically higher gross prices. The average U.S. manufacturer price per 100 IUs across all insulins was $22.68, compared with $3.75 in Canada, $2.20 in the United Kingdom, $2.79 in Mexico, and $2.37 across all non-U.S. OECD countries combined . . . .”). ↑
  5.  Id. at v. ↑
  6.  Id. ↑
  7.  Judith A. Johnson, Cong. Rsch. Serv., IF11026, Insulin Products and the Cost of Diabetes Treatment 2 (2018). ↑
  8.  See infra Part I. ↑
  9.  See infra Section II.B. ↑
  10.  See infra Section II.B. ↑
  11.  See infra Section II.B. ↑
  12.  See Adam J. Fein, The Top Pharmacy Benefit Managers of 2024: Market Share and Key Industry Developments, Drug Channels Inst. (Mar. 31, 2025), https://www.drugchannels.net/2‌025/03/the-top-pharmacy-benefit-managers-of.html [https://perma.cc/XY38-T4BH] (“[Drug Channels Institute] estimates that for 2024, about 80% of all equivalent prescription claims were processed by three companies: the Caremark business of CVS Health, the Express Scripts business of Cigna, and the Optum Rx business of UnitedHealth Group.”). ↑
  13.  Claudia Martínez, Camille Romero & Natalia Sánchez Villalobos, Access to Med. Found., What Are Pharma Companies Doing to Expand Access to Insulin—and How Can Efforts Be Scaled Up? 4 (2022); Off. of Pol’y Plan., U.S. Fed. Trade Comm’n, Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies 2 (2024). The six largest PBMs manage nearly ninety-five percent of all prescriptions filled in the United States. Id. at 5. ↑
  14.  See discussion infra Section II.D. ↑
  15.  Bisma A. Sayed et al., Off. of the Assistant Sec’y for Plan. & Evaluation, U.S. Dep’t of Health & Hum. Servs., Insulin Affordability and the Inflation Reduction Act: Medicare Beneficiary Savings by State and Demographics 1 (2023), https://aspe.hhs.gov/sites/default/fil‌es/documents/bd5568fa0e8a59c2225b2e0b93d5ae5b/aspe-insulin-affordibility-datapoint.pdf [https://perma.cc/TL9A-QWJU]; Tami Luhby, More Americans Can Now Get Insulin for $35, CNN, https://www.cnn.com/2024/01/01/politics/insulin-price-cap/index.html [https://perma.‌cc/6TAR-FBEV] (last updated Jan. 2, 2024, 5:34 PM); Jay-Donavin Ved, The Inflation Reduction Act of 2022: Addressing Prescription Drug Coverage, 32 Annals Health L. Advance Directive 131, 131 (2023). ↑
  16.  See infra Part III. ↑
  17.  Patients Over Profit Act, S. 2836, 119th Cong. (2025). ↑
  18.  See infra Section III.B, Figure IV, Table I. ↑
  19.  T. Joseph Mattingly II, Maisie Lewis, Mariana P. Socal & Ge Bai, State-Level Policy Efforts to Regulate Pharmacy Benefit Managers (PBMs), 18 Rsch. Soc. & Admin. Pharmacy 3995, 3995, 3999 (2022). ↑
  20.  Many of these actions—including those by Arkansas, Illinois, Kansas, Mississippi, Montana, California, Louisiana, Puerto Rico, Hawaii, Arizona, Texas, Utah, Missouri, as well as by unions and local governments—have been consolidated. Docket, In re Insulin Pricing Litig., No. 3080 (J.P.M.L. May 9, 2023). The FTC filed its own complaint against PBMs, alleging violation of Section 5 of the FTC Act, 15 U.S.C. § 45, in September 2024. Complaint, In re Caremark Rx, LLC, No. 9437 (F.T.C. Sept. 20, 2024) [hereinafter FTC Complaint]. Class actions have also been filed by patients against insurers for paying PBMs inflated drug costs. Daniel Wiessner, Wells Fargo Sued Over Employee Prescription Drug Costs, Reuters (July 30, 2024), https://www.reuters.com/legal/wells-fargo-sued-over-employee-prescription-drug-costs-2024-07-30/ [https://perma.cc/7MM5-VF5N]. ↑
  21.  First Amended Complaint at 6, Arkansas ex rel. Rutledge v. Eli Lilly & Co., No. 22-cv-00549 (E.D. Ark. Aug. 8, 2022); Complaint at 6, Illinois ex rel. Raoul v. Eli Lilly & Co., No. 2022CH11699 (Ill. Cir. Ct. Dec. 2, 2022); Petition at 6, Kansas ex rel. Schmidt v. Eli Lilly & Co., No. 2022-cv-000735 (Kan. Dist. Ct. Dec. 2, 2022); Third Amended Complaint at 5, Mississippi ex rel. Fitch v. Eli Lilly & Co., No. 21-cv-00674 (S.D. Miss. Feb. 17, 2022). ↑
  22.  These states and territories are Arizona, Arkansas, California, Hawaii, Illinois, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Ohio, Pennsylvania, Puerto Rico, Texas, Utah, and West Virginia. Docket, In re Insulin Pricing Litig., No. 3080. ↑
  23.  See Lexington Souers, State Legislation Provides Hope for Rising Insulin Costs, Council of State Gov’ts (Mar. 31, 2023), https://www.csg.org/2023/03/31/state-legislation-provides-h‌ope-for-rising-insulin-costs/ [https://perma.cc/6R4D-7937] (contrasting the legislation that Governor Newsom initially vetoed with insulin price cap legislation in eleven other states); Jess Berthold, CA Governor Just Vetoed Price Caps on Insulin. Now What?, Univ. of Cal. S.F. (Oct. 11, 2023), https://www.ucsf.edu/news/2023/10/426351/ca-governor-just-vetoed-pri‌ce-caps-insulin-now-what [https://perma.cc/8MPV-MT6D] (explaining California’s alternative plan to produce its own insulin for thirty dollars per vial); see also infra note 237 (detailing California’s newly enacted insulin price cap legislation). ↑
  24.  S.B. 852, 2020 Leg., Reg. Sess. (Cal. 2020). ↑
  25.  Lynn La, California Will Buy Cheaper Naloxone to Stop Fentanyl Deaths, CalMatters (Apr. 30, 2024), https://calmatters.org/newsletter/california-fentanyl-deaths-naloxone/ [https:‌//perma.cc/KS48-3QPT]; see also Kristen Hwang, Newsom Committed California to Making Its Own Insulin. It’s at Least a Year Behind His Schedule, CalMatters (Jan. 15, 2025), https://c‌almatters.org/health/2025/01/insulin-production-gavin-newsom/ [https://perma.cc/K9FR-N‌X92] (detailing the ties between the state’s efforts to make both insulin and naloxone more affordable). ↑
  26.  See infra Section V.A. ↑
  27. See, e.g., Lev Facher, It’s the Insulin, Stupid: How Drug Pricing’s Simplest Case Study Became a Top Issue for 2020 Democrats, STAT News (Jan. 28, 2020), https://www.statnews.c‌om/2020/01/28/insulin-pricing-becomes-top-issue-for-democrats [https://perma.cc/GB8L-E‌VKQ] (“Even in a primary dominated by broader health care issues, insulin has emerged as particularly alluring campaign fodder for Democrats. Unlike more perplexing topics like health insurance reform or the cost of drug research, candidates have a plain and simple rallying cry for insulin: That it’s corporate profiteering.”). ↑
  28.  78 F.4th 1183 (10th Cir. 2023). ↑
  29.  141 S. Ct. 474 (2020). ↑

  30.  On public-private governance theory and practice, see Lobel, The Renew Deal, supra note 3, at 344–45. ↑

Section 1981 as Contract Law

A civil rights secret hides in plain sight: a federal antidiscrimination statute, 42 U.S.C. § 1981, expresses foundational rules of contract law in the United States. Originating in the Civil Rights Act of 1866 and amended by the Civil Rights Act of 1991, Section 1981 prohibits racially discriminatory formation, performance, modification, termination, and enforcement of contracts. The statute thus forbids parties from racially discriminating in nearly every phase of every contractual relationship.

Despite Section 1981’s evident concern for contracts, comprehensive summaries of contract law—including Restatements, treatises, and casebooks—usually ignore the statute. This omission might make sense if Section 1981 does not count as contract law, a tempting view given its status as federal antidiscrimination law. But this Article argues that, for conceptual and normative reasons, Section 1981 already counts as an important part of contract law and should be recognized as such. Apart from aspiring to guarantee equal citizenship regardless of race, the statute’s importance as contract law is hard to overstate given that it governs nearly every aspect of every contract—indeed, even every attempted contract—in the United States.

These claims have theoretical and practical implications. Contract law theories must respond to the possibility that antidiscrimination rules reinforce contract law’s most basic values rather than thwarting them. Practically, editors of treatises and other comprehensive doctrinal summaries should include some nontrivial discussion of Section 1981’s origins and contemporary applications. Applying doctrines like good faith and fair dealing may require assessing whether contracts are performed without racial discrimination. And law professors should consider revising their syllabi to include Section 1981 in their courses on contract law.

Contract law needs antidiscrimination law to realize its animating values, including economic freedom and basic transactional fairness. Rather than undermining the values embodied in contract law, sound antidiscrimination laws like Section 1981 are essential to facilitate and express them. The possibility that some antidiscrimination rules form part of contract law rather than merely constraining its operation from the outside should therefore come as no surprise.

Introduction

A civil rights secret hides in plain sight: a federal antidiscrimination statute, which has been on the books in one form or another since 1866, expresses foundational rules of contract law in the United States. This claim should be surprising. Contract law, after all, is traditionally understood to be indifferent to invidious discrimination,1 1.See Bowlin v. Lyon, 25 N.W. 766, 767–68 (Iowa 1885) (holding that a “colored man” who was denied entry into a skating rink solely because of his race was not entitled to admission given the rink’s discretion to contract with, or grant entry to, whomever it pleased); Noah D. Zatz, A Law and Political Economy Approach to Race, Gender, and Power in Contracts, in Integrating Doctrine and Diversity: Inclusion and Equity in the Law School Classroom 129, 133 (Nicole P. Dyszlewski, Raquel J. Gabriel, Suzanne Harrington-Steppen, Anna Russell & Genevieve B. Tung eds., 2021) (observing that “[i]n the classic common-law cases of refusal-to-contract, discrimination appears as purely private preference,” which courts treated on par with any other personal preference in the name of “evenhandedness”); Hila Keren, “We Insist! Freedom Now”: Does Contract Doctrine Have Anything Constitutional to Say?, 11 Mich. J. Race & L. 133, 142 (2005) [hereinafter Keren, We Insist! Freedom Now]; see alsoOrit Gan, Contract Law, Equality and the State, 72 Clev. St. L. Rev. 889, 892 (2024) (“[C]onventional wisdom holds that contract law has nothing to do with social equality.”); Deborah Zalesne, Racial Inequality in Contracting: Teaching Race as a Core Value, 3 Colum. J. Race & L. 23, 25 (2013) [hereinafter Zalesne, Racial Inequality in Contracting] (“Neoclassical contract theory embraces the idea of formal legal color blindness in assessing the validity of a contract, assuming that an individual’s race or ethnicity played no role in a contract’s formation or content.”).Show More independent of antidiscrimination law,2 2.Zatz, supra note 1, at 132–33 (describing antidiscrimination law’s “startling omission from” and “neglect within contracts curricula”); Allan H. Macurdy, Classical Nostalgia: Racism, Contract Ideology, and Formalist Legal Reasoning in Patterson v. McLean Credit Union, 18 N.Y.U. Rev. L. & Soc. Change 987, 1024–25 (1990) (asserting that, although contract law monitors valid contractual relationships through a variety of doctrines, the ostensibly “private” nature of contract law makes “[a]ntidiscrimination principles . . . seem irrelevant to the business of conducting business, and are thus of low priority”);Gan, supra note 1, at 892 (describing, without endorsing, the claim that “[c]ontract law is private law and has nothing to do with anti-discrimination law”).Show More and perhaps even antithetical to it.3 3.Richard A. Epstein, Forbidden Grounds: The Case Against Employment Discrimination Laws 3 (1992) (describing antidiscrimination law as the “antithesis of freedom of contract”); Kirsten L. McCaw, Comment, Freedom of Contract Versus the Antidiscrimination Principle: A Critical Look at the Tension Between Contractual Freedom and Antidiscrimination Provisions, 7 Seton Hall Const. L.J. 195, 202–03 (1996).Show More Concerning racial discrimination specifically, one can teach contract law, learn it, and wield it expertly without discussing or knowing much about whether or how race has shaped its current form,4 4.Dylan C. Penningroth, Race in Contract Law, 170 U. Pa. L. Rev. 1199, 1298–1300 (2022); see also Jeremiah A. Ho, Uncovering Bias: Teaching Contracts Critically, in Integrating Doctrine and Diversity: Inclusion and Equity in the Law School Classroom, supra note 1, at 121, 121–22.Show More how racial bias impacts contractual transactions,5 5.See, e.g., Patricia J. Williams, The Alchemy of Race and Rights 146–48 (1991); Meirav Furth-Matzkin, Discrimination in Contractual Performance: Theory, Evidence, and Preliminary Policy Prescriptions, 99 Wash. L. Rev. 1165, 1177–84 (2024) (summarizing evidence of selective enforcement of consumer contract terms). See generally, e.g., Ian Ayres, Pervasive Prejudice? Unconventional Evidence of Race and Gender Discrimination (2001) (arguing, with empirical support, that race and gender discrimination is not uncommon in retail markets); Shaun L. Gabbidon & George E. Higgins, Shopping While Black: Consumer Racial Profiling in America (2020) (describing the pervasiveness of racial discrimination in everyday retail transactions); Michelle R. Dunlap, Retail Racism: Shopping While Black and Brown in America (2021) (explaining that racial profiling and inequality are prevalent in “every marketplace imaginable”); Anne-Marie G. Harris, Shopping While Black: Applying 42 U.S.C. § 1981 to Cases of Consumer Racial Profiling, 23 B.C. Third World L.J. 1 (2003) (analyzing the frequency and causes of consumer racial profiling and identifying Section 1981 claims as a possible recourse for people who experience discrimination in the marketplace); Marianne Bertrand & Sendhil Mullainathan, Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination, 94 Am. Econ. Rev. 991 (2004) (examining racial discrimination in employment contracts by demonstrating that the labor market favors individuals with “white-sounding” names over individuals with “African-American-sounding” names).Show More or how contract law has affected the distribution of wealth among racial groups.6 6.See, e.g., Zalesne, Racial Inequality in Contracting, supra note 1, at 25 (“The apparent neutrality of contract law masks the distributive effects of legal rules.”). See generally, e.g., Keeanga-Yamahtta Taylor, Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership (2019) (arguing that the public-private partnership between the real estate industry and the federal government in the late twentieth century exacerbated racial discrimination and residential segregation); Danielle Kie Hart, Contract Law & Racial Inequality: A Primer, 95 St. John’s L. Rev. 449 (2021) (arguing that, due to unequal bargaining power, contract law tends to increase material inequality in general, leading to material harm to marginalized groups). Discrimination in real estate appraisals, for example, straightforwardly impacts the wealth of Black homeowners. Jonathan Rothwell & Andre M. Perry, How Racial Bias in Appraisals Affects the Devaluation of Homes in Majority-Black Neighborhoods, Brookings Inst. (Dec. 5, 2022), https://www.brookings.edu/a‌rticles/how-racial-bias-in-appraisals-affects-the-devaluation-of-homes-in-majority-black-nei‌ghborhoods/ [https://perma.cc/A5HQ-43L8]; Heather R. Abraham, Appraisal Discrimination: Five Lessons for Litigators, 76 SMU L. Rev. 205, 215–19 (2023) (explaining some historic and modern mechanisms in the valuation process that lead to appraisal discrimination). For more on banking, see generally Mehrsa Baradaran, The Color of Money: Black Banks and the Racial Wealth Gap (2017) (explaining how the history of racial segregation in banking contributed to the racial wealth gap).Show More After all, neither doctrines nor statutes widely recognized as part of contract law refer to race or outwardly concern themselves with racial discrimination.7 7.Steven J. Burton, Racial Discrimination in Contract Performance: Patterson and a State Law Alternative, 25 Harv. C.R.-C.L. L. Rev. 431, 458–59 (1990) [hereinafter Burton, Racial Discrimination in Contract Performance]; Blake D. Morant, The Relevance of Race and Disparity in Discussions of Contract Law, 31 New Eng. L. Rev. 889, 897 (1997) (noting the existence of “contract law’s objective facade” which can obscure the role that “issues of disparity,” like racial discrimination, play in the contract process); Deborah Zalesne, The (In)Visibility of Race in Contracts: Thoughts for Teachers, ContractsProf Blog (July 8, 2020) [hereinafter Zalesne, The (In)Visibility of Race in Contracts], https://www.contractsprofblog.‌com/2020/07/deborah-zalesne-the-invisibility-of-race-in-contracts-thoughts-for-teachers/ [htt‌ps://perma.cc/TTW3-4HPL].Show More Even Williams v. Walker-Thomas Furniture Co.—a case famous for recognizing modern unconscionability doctrine and for highlighting issues about predatory market behavior in communities of color8 8.See Duncan Kennedy, The Bitter Ironies of Williams v. Walker-Thomas Furniture Co. in the First Year Law School Curriculum, 71 Buff. L. Rev. 225, 236 (2023).Show More—never mentions race explicitly.9 9.Id. at 236–37; see also Zalesne, Racial Inequality in Contracting, supra note 1, at 34; Amy H. Kastely, Out of the Whiteness: On Raced Codes and White Race Consciousness in Some Tort, Criminal, and Contract Law, 63 U. Cin. L. Rev. 269, 307 (1994). See generally Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965).Show More Contract law’s formal doctrines ignore race.

Critical scholars have also taken for granted contract law’s indifference to race,10 10.ContractsProf Blog devotes several posts to the question of how to raise the topics of race and racism in first-year courses in contract law. See, e.g., Charles Calleros, Talking About Race in the Contracts Course: Interface with Civil Rights Laws, Part I—Mutual Assent, ContractsProf Blog (June 15, 2020), https://www.contractsprofblog.com/2020/06/guest-post-by-charles-calleros-talking-about-race-in-the-contracts-course-interface-with-civil-right/ [htt‌ps://perma.cc/XL9Y-HYYD]; Charles Calleros, Talking About Race in the Contracts Course: Interface with Civil Rights Laws, Part II—Consideration, ContractsProf Blog (June 16, 2020), https://www.contractsprofblog.com/2020/06/guest-post-by-charles-calleros-talking-about-ra‌ce-in-the-contracts-course-interface-with-civil-right-1/ [https://perma.cc/P39Q-CNTQ]; Zalesne, The (In)Visibility of Race in Contracts, supra note 7.Show More arguing that contract law’s formal doctrines help courts and contracting parties mask racial biases in contractual relationships11 11.See Zalesne, Racial Inequality in Contracting, supra note 1, at 25–26; Chaumtoli Huq, Integrating a Racial Capitalism Framework into First-Year Contracts: A Pathway to Anti-Capitalist Lawyering, 35 J.C.R. & Econ. Dev. 181, 195 (2022) (asserting that “neutral discussions of core contracts principles, such as the unenforceability of gratuitous promises, consideration, and reliance, obscure how law maintains racial and economic subordination”); Marissa Jackson Sow, Whiteness as Contract, 78 Wash. & Lee L. Rev. 1803, 1829 (2022).Show More and render race-based contracting decisions irrelevant to the legal analysis of contract issues,12 12.Zalesne, Racial Inequality in Contracting, supra note 1, at 25–26 (asserting that assumptions of legal reasoning in contract law doctrine conceal bias); Huq, supra note 11, at 195–97 (citing Kirksey v. Kirksey, 8 Ala. 131 (1845)) (arguing that the traditional analysis of the formal contract doctrines presented in the classic Kirkseycase conceals background “ploys of power and racial subordination”); see alsoKastely, supra note 9, at 306 (arguing that Williams v. Walker-Thomas Furniture Co., a classic unconscionability case, fails to make explicit in its unconscionability analysis that the predatory contracts at issue involved “exploitation of low-income people of color . . . enabled in part by racist barriers”).Show More at least outside of certain important but circumscribed areas of economic life like employment,13 13.See generally 42 U.S.C. §§ 2000e–2000e-17 (prohibiting various types of employment discrimination).Show More housing,14 14.See generally id. §§ 3601–3619, 3631 (prohibiting housing discrimination).Show More education,15 15.See, e.g., Brown v. Bd. of Educ., 347 U.S. 483, 492–94 (1954) (holding that the racial segregation of children in public schools is unconstitutional).Show More and commercial lending.16 16.15 U.S.C. §§ 1691–1691f (prohibiting lending discrimination).Show More Contract law’s race-free facade has also been criticized for obscuring how minorities have used contract law to exercise their agency successfully in the world.17 17.Penningroth, supra note 4, at 1211–16, 1273; Brittany Farr, Breach by Violence: The Forgotten History of Sharecropper Litigation in the Post-Slavery South, 69 UCLA L. Rev. 674, 681–82 (2022).Show More If formalists and critical race theorists share any scholarly views about contract law, foremost is their assumption that it ignores race and racial discrimination.18 18.Professor Deborah Zalesne, however, does seem to challenge the assumption that contract law ignores race and racial discrimination in Zalesne, Racial Inequality in Contracting, supra note 1, at 24–25 (“[A] complete understanding of contract disputes routinely requires an analysis of the effects of inequality, including race dynamics, on parties’ bargaining choices.”). Although Zalesne correctly observes that courts have raised the issue of inequality of bargaining power in the context of applying the unconscionability doctrine, she does not show that courts routinely appeal to underlying racial dynamics in their legal reasoning. See generally id. See also Justin Driver, Recognizing Race, 112 Colum. L. Rev. 404, 449 (2012) (arguing that applying unconscionability in the Williams v. Walker-Thomas Furniture Co. case does not require reckoning with race). For one unconscionability case that notes racial disparities without disclosing the racial identities of the litigants, see State ex rel. King v. B & B Inv. Grp., Inc., 2014-NMSC-024, ¶¶ 13–17, 329 P.3d 658, 665–66.Show More

This Article challenges that assumption. Race is directly relevant to contract law because a federal statute prohibiting racial discrimination in contracting, 42 U.S.C. § 1981, also expresses important rules of contract law. Section 1981 guarantees everyone the same right “to make and enforce contracts . . . as is enjoyed by white citizens” and prohibits both private and public actors from racially discriminating in “the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.”19 19.42 U.S.C. § 1981(a)–(c).Show More This language—originating in the Civil Rights Act of 1866 and updated by the Civil Rights Act of 199120 20.Civil Rights Act of 1866, ch. 31, § 1, 14 Stat. 27, 27 (codified as amended at 42 U.S.C. §§ 1981–1982, 1988–1989); Civil Rights Act of 1991, Pub. L. No. 102-166, § 101, 105 Stat. 1071, 1071–72 (codified as amended at 42 U.S.C. § 1981).Show More—generates three reasons to treat Section 1981 as part of contract law in the United States.

The first traces back to the 1866 Act. Among other things, the Civil Rights Act of 1866 reformed the law of contract formation in the United States in response to the Black Codes adopted by Southern states after the Civil War.21 21.See infra Part I.Show More The Black Codes represented a systematic effort by Southern states to socially and economically subordinate formerly enslaved persons, including by affording legal powers to make and enforce contracts to white citizens that it denied to people of color.22 22.See infra Part I.Show More Congress rejected the Black Codes via the 1866 Act and thereby eliminated, at least as a formal matter, the two-tiered system of contractual freedoms they had established.23 23.See infra Part I.Show More Insofar as the rules defining the legal power to contract are quintessentially rules of contract law, the redefinition of that power Section 1981 inherited from the 1866 Act counts as contract law.24 24.See infra Part II.Show More

The second reason Section 1981 counts as part of contract law finds a foothold in the Civil Rights Act of 1991. In the 1991 Act, Congress explicitly prohibited racial discrimination in several distinctively contractual activities, including contract formation, performance, enforcement, modification, and termination.25 25.42 U.S.C. § 1981(b).Show More I argue that these are protective rules and thus count as part of contract law. Briefly, just like rules against fouling in basketball count as part of basketball’s rules and the Fourth Amendment exclusionary rule counts as a rule of constitutional law, Section 1981 expresses a rule that protects both the integrity of the practice of contracting (as opposed to basketball or government investigations), as well as the participants in the practice qua contracting parties (as opposed to basketball players or citizens). Because protective rules are partially constitutive of the system of rules they protect, Section 1981 counts as part of contract law and should be recognized as such.26 26.See infra Part II.Show More

These formal and conceptual considerations are reinforced, third, by substantive principles of contract law itself. More specifically, contract law’s core doctrines embody principles of fair play that cannot be easily reconciled with pernicious racial discrimination in contracting practices. Although common law courts have largely failed to recognize this point, and although they probably should, courts need not go that far: they need only recognize that Section 1981 already counts as part of contract law. Congress, after all, has already recognized the importance of antidiscrimination law in facilitating contractual fair play, and not just in some discrete economic realms such as employment or housing, but also in acts and practices of contracting as such. Common law courts should follow Congress’s lead.

Classifying Section 1981 as part of contract law is a taxonomical task. But taxonomy has far-reaching implications in this case. If Section 1981 is a foundational part of contract law, then theories of contract law that assume the power to contract confers unfettered discretion on parties to contract regardless of motive, for example, will have difficulty accounting for Section 1981.27 27.See infra Section V.A.Show More Because most comprehensive summaries of contract law fail to cite, let alone discuss, Section 1981,28 28.See infra Part IV.Show More curators of these works should discuss Section 1981’s significance or rethink why they omit the statute. Recognizing Section 1981 as part of contract law also undercuts the impulse to treat discrimination as extrinsic to doctrines such as good faith and fair dealing. Finally, if Section 1981 is an important part of contract law, then choosing not to teach it requires a justification. Although good reasons not to teach Section 1981 may exist—not every important subject can be covered in one semester—the bare fact that the statute expresses rules of antidiscrimination law cannot be one of those reasons. Section 1981 also states rules of contract law.

With that preview in mind, this Article is structured as follows. Part I gives a brief history of Section 1981 and discusses the controversies that surrounded its meaning, at least until Congress altered the statute via the Civil Rights Act of 1991. Chief among these controversies was whether it applied only to state action or whether Section 1981 also prohibited private discrimination. Although other interpretive controversies remain, both the U.S. Supreme Court and Congress have settled the question by extending the statute to private contracting practices. The Civil Rights Act of 1991 also clarified that Section 1981 bars racial discrimination in the formation, performance, modification, termination, and enforcement of every contract by public and private actors.

Part II turns to the main argument: Section 1981 already is, and should be understood to be, a part of contract law in the United States. Section II.A explains that the Civil Rights Act of 1866 reconstituted the law of contract formation in response to the Black Codes adopted by Southern states after the Civil War. Because the laws of contract formation are quintessentially part of contract law, the Civil Rights Act of 1866 inescapably became part of contract law in the United States. Section II.A further argues that the nature of Section 1981’s antidiscrimination rules suffices to show that it is part of contract law. Because Section 1981 protects participants in the practice of contracting as such, Section 1981 thereby generates rules of contract law. Section II.B takes a substantive and normative turn, arguing that Section 1981’s rule against racial discrimination should be recognized as an expression of contract law’s most basic principles rather than as a deviation from them. That is, because contract law’s doctrines already disfavor contractual unreasonableness in contracting, courts and commentators should likewise recognize that contract law disfavors invidious racial discrimination in contracting because it is also contractually unreasonable.29 29.See infra Section III.B.Show More

Part III argues that Section 1981’s antidiscrimination rule not only counts as part of contract law, but also counts as an important part of it. Section III.A reemphasizes Section 1981’s historical significance, as well as its formal importance given that it applies to all contracts (i.e., it has universal breadth) and regulates significant stages of any given contractual relationship (i.e., it has profound depth). Section III.B argues, in the alternative, that the very same reasons to treat Section 1981 as important justify revising our comprehensive summaries of contract law regardless of whether it counts as contract law.

Part IV shows that despite its status as contract law, despite applying to nearly every phase of every contractual relationship, and despite its importance, Section 1981 has been almost wholly ignored by leading repositories of contract law in the United States, including Restatements, casebooks, and major contract law treatises. Some of these omissions are not surprising. The Restatement (Second) of Contracts, for example, emphasizes the common law and was finalized by the American Law Institute in 1979—shortly after the U.S. Supreme Court recognized in Runyon v. McCrary that the statute applies to private contracting practices.30 30.See infra Part I; Runyon v. McCrary, 427 U.S. 160, 168 (1976); Restatement (Second) of Conts. (Am. L. Inst. 1981).Show More Still, seventy-four percent of contract law casebooks—which often stray beyond the common law and are frequently updated—do not cite the statute.31 31.See infra Section IV.B.Show More Many of those that do largely fail to discuss the statute’s history or contemporary applications.32 32.See infra Section IV.B.Show More

Finally, Part V addresses why taxonomy matters. Section V.A shows that Section 1981’s antidiscrimination rule has important implications for contract law theorists. Understanding Section 1981’s antidiscrimination mandate as part of contract law challenges libertarian and libertarian-adjacent views that treat the freedom to choose one’s contracting partners as sacrosanct, while favoring justice-oriented theories that treat equality and fairness as central to the domain. Understanding the statute as generating contract law also raises practical issues concerning how we maintain and impart knowledge about contract law’s content. Section V.B discusses these issues, arguing, first, that the comprehensive doctrinal summaries of contract law discussed in Part IV should be revised to reflect Section 1981’s rules against racial discrimination, and second, that law professors who teach contract law should consider incorporating a discussion of Section 1981 into their curriculum. Although this second recommendation is offered more tentatively,33 33.See infra Section V.B.Show More there is little reason to justify excluding Section 1981 from the legal community’s comprehensive doctrinal summaries of contract law—e.g., our casebooks, treatises, and Restatements—if Section 1981 indeed counts as an important part of contract law in the United States. Finally, Section V.B briefly discusses how understanding Section 1981 as part of contract law should impact how courts apply doctrines like unconscionability, the duty of good faith and fair dealing, and voidness as a matter of public policy. Once racial discrimination is understood as part of contract law’s purview, evaluating racial discrimination as relevant to doctrinal analysis elsewhere seems less far-fetched.

As noted above, scholars have long worried that contract law’s apparent indifference to race masks how our current commercial realities have been shaped by slavery and Jim Crow. That same indifference also obscures how racial bias continues to harm communities of color seeking to navigate modern markets. By the same token, if contract law does not take race into account formally, discussing race fruitfully while learning about and teaching contract law will remain an uphill battle because the conversation will seem forced. But reconceiving Section 1981 as a foundational part of contract law not only presents a more accurate picture of contract law in the United States, but it also connects our understandings of past racial injustices to present ones, as well as highlights the interface between “traditional” doctrines of contract law and those injustices. Recognizing Section 1981 as a foundational part of contract law will not eliminate racial biases or frictions in the market or undo persistently unequal bargaining power and wealth, which trace to this country’s sordid history of Black subordination.34 34.See generally Carliss Chatman, 1981, 82 Wash. & Lee L. Rev. (forthcoming 2025), https:/‌/papers.ssrn.com/sol3/papers.cfm?abstract_id=4998718 [https://perma.cc/M8ZD-3TKN].Show More But it may help lawyers better appreciate the ubiquity of the problem, as well as give them a more complete view of contract law’s content and a richer understanding of its ideals.

  1.  See Bowlin v. Lyon, 25 N.W. 766, 767–68 (Iowa 1885) (holding that a “colored man” who was denied entry into a skating rink solely because of his race was not entitled to admission given the rink’s discretion to contract with, or grant entry to, whomever it pleased); Noah D. Zatz, A Law and Political Economy Approach to Race, Gender, and Power in Contracts, in Integrating Doctrine and Diversity: Inclusion and Equity in the Law School Classroom 129, 133 (Nicole P. Dyszlewski, Raquel J. Gabriel, Suzanne Harrington-Steppen, Anna Russell & Genevieve B. Tung eds., 2021) (observing that “[i]n the classic common-law cases of refusal-to-contract, discrimination appears as purely private preference,” which courts treated on par with any other personal preference in the name of “evenhandedness”); Hila Keren, “We Insist! Freedom Now”: Does Contract Doctrine Have Anything Constitutional to Say?, 11 Mich. J. Race & L. 133, 142 (2005) [hereinafter Keren, We Insist! Freedom Now]; see also Orit Gan, Contract Law, Equality and the State, 72 Clev. St. L. Rev. 889, 892 (2024) (“[C]onventional wisdom holds that contract law has nothing to do with social equality.”); Deborah Zalesne, Racial Inequality in Contracting: Teaching Race as a Core Value, 3 Colum. J. Race & L. 23, 25 (2013) [hereinafter Zalesne, Racial Inequality in Contracting] (“Neoclassical contract theory embraces the idea of formal legal color blindness in assessing the validity of a contract, assuming that an individual’s race or ethnicity played no role in a contract’s formation or content.”). ↑
  2.  Zatz, supra note 1, at 132–33 (describing antidiscrimination law’s “startling omission from” and “neglect within contracts curricula”); Allan H. Macurdy, Classical Nostalgia: Racism, Contract Ideology, and Formalist Legal Reasoning in Patterson v. McLean Credit Union, 18 N.Y.U. Rev. L. & Soc. Change 987, 1024–25 (1990) (asserting that, although contract law monitors valid contractual relationships through a variety of doctrines, the ostensibly “private” nature of contract law makes “[a]ntidiscrimination principles . . . seem irrelevant to the business of conducting business, and are thus of low priority”); Gan, supra note 1, at 892 (describing, without endorsing, the claim that “[c]ontract law is private law and has nothing to do with anti-discrimination law”). ↑
  3.  Richard A. Epstein, Forbidden Grounds: The Case Against Employment Discrimination Laws 3 (1992) (describing antidiscrimination law as the “antithesis of freedom of contract”); Kirsten L. McCaw, Comment, Freedom of Contract Versus the Antidiscrimination Principle: A Critical Look at the Tension Between Contractual Freedom and Antidiscrimination Provisions, 7 Seton Hall Const. L.J. 195, 202–03 (1996). ↑
  4.  Dylan C. Penningroth, Race in Contract Law, 170 U. Pa. L. Rev. 1199, 1298–1300 (2022); see also Jeremiah A. Ho, Uncovering Bias: Teaching Contracts Critically, in Integrating Doctrine and Diversity: Inclusion and Equity in the Law School Classroom, supra note 1, at 121, 121–22. ↑
  5.  See, e.g., Patricia J. Williams, The Alchemy of Race and Rights 146–48 (1991); Meirav Furth-Matzkin, Discrimination in Contractual Performance: Theory, Evidence, and Preliminary Policy Prescriptions, 99 Wash. L. Rev. 1165, 1177–84 (2024) (summarizing evidence of selective enforcement of consumer contract terms). See generally, e.g., Ian Ayres, Pervasive Prejudice? Unconventional Evidence of Race and Gender Discrimination (2001) (arguing, with empirical support, that race and gender discrimination is not uncommon in retail markets); Shaun L. Gabbidon & George E. Higgins, Shopping While Black: Consumer Racial Profiling in America (2020) (describing the pervasiveness of racial discrimination in everyday retail transactions); Michelle R. Dunlap, Retail Racism: Shopping While Black and Brown in America (2021) (explaining that racial profiling and inequality are prevalent in “every marketplace imaginable”); Anne-Marie G. Harris, Shopping While Black: Applying 42 U.S.C. § 1981 to Cases of Consumer Racial Profiling, 23 B.C. Third World L.J. 1 (2003) (analyzing the frequency and causes of consumer racial profiling and identifying Section 1981 claims as a possible recourse for people who experience discrimination in the marketplace); Marianne Bertrand & Sendhil Mullainathan, Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination, 94 Am. Econ. Rev. 991 (2004) (examining racial discrimination in employment contracts by demonstrating that the labor market favors individuals with “white-sounding” names over individuals with “African-American-sounding” names). ↑
  6.  See, e.g., Zalesne, Racial Inequality in Contracting, supra note 1, at 25 (“The apparent neutrality of contract law masks the distributive effects of legal rules.”). See generally, e.g., Keeanga-Yamahtta Taylor, Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership (2019) (arguing that the public-private partnership between the real estate industry and the federal government in the late twentieth century exacerbated racial discrimination and residential segregation); Danielle Kie Hart, Contract Law & Racial Inequality: A Primer, 95 St. John’s L. Rev. 449 (2021) (arguing that, due to unequal bargaining power, contract law tends to increase material inequality in general, leading to material harm to marginalized groups). Discrimination in real estate appraisals, for example, straightforwardly impacts the wealth of Black homeowners. Jonathan Rothwell & Andre M. Perry, How Racial Bias in Appraisals Affects the Devaluation of Homes in Majority-Black Neighborhoods, Brookings Inst. (Dec. 5, 2022), https://www.brookings.edu/a‌rticles/how-racial-bias-in-appraisals-affects-the-devaluation-of-homes-in-majority-black-nei‌ghborhoods/ [https://perma.cc/A5HQ-43L8]; Heather R. Abraham, Appraisal Discrimination: Five Lessons for Litigators, 76 SMU L. Rev. 205, 215–19 (2023) (explaining some historic and modern mechanisms in the valuation process that lead to appraisal discrimination). For more on banking, see generally Mehrsa Baradaran, The Color of Money: Black Banks and the Racial Wealth Gap (2017) (explaining how the history of racial segregation in banking contributed to the racial wealth gap). ↑
  7.  Steven J. Burton, Racial Discrimination in Contract Performance: Patterson and a State Law Alternative, 25 Harv. C.R.-C.L. L. Rev. 431, 458–59 (1990) [hereinafter Burton, Racial Discrimination in Contract Performance]; Blake D. Morant, The Relevance of Race and Disparity in Discussions of Contract Law, 31 New Eng. L. Rev. 889, 897 (1997) (noting the existence of “contract law’s objective facade” which can obscure the role that “issues of disparity,” like racial discrimination, play in the contract process); Deborah Zalesne, The (In)Visibility of Race in Contracts: Thoughts for Teachers, ContractsProf Blog (July 8, 2020) [hereinafter Zalesne, The (In)Visibility of Race in Contracts], https://www.contractsprofblog.‌com/2020/07/deborah-zalesne-the-invisibility-of-race-in-contracts-thoughts-for-teachers/ [htt‌ps://perma.cc/TTW3-4HPL]. ↑
  8.  See Duncan Kennedy, The Bitter Ironies of Williams v. Walker-Thomas Furniture Co. in the First Year Law School Curriculum, 71 Buff. L. Rev. 225, 236 (2023). ↑
  9.  Id. at 236–37; see also Zalesne, Racial Inequality in Contracting, supra note 1, at 34; Amy H. Kastely, Out of the Whiteness: On Raced Codes and White Race Consciousness in Some Tort, Criminal, and Contract Law, 63 U. Cin. L. Rev. 269, 307 (1994). See generally Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). ↑
  10.  ContractsProf Blog devotes several posts to the question of how to raise the topics of race and racism in first-year courses in contract law. See, e.g., Charles Calleros, Talking About Race in the Contracts Course: Interface with Civil Rights Laws, Part I—Mutual Assent, ContractsProf Blog (June 15, 2020), https://www.contractsprofblog.com/2020/06/guest-post-by-charles-calleros-talking-about-race-in-the-contracts-course-interface-with-civil-right/ [htt‌ps://perma.cc/XL9Y-HYYD]; Charles Calleros, Talking About Race in the Contracts Course: Interface with Civil Rights Laws, Part II—Consideration, ContractsProf Blog (June 16, 2020), https://www.contractsprofblog.com/2020/06/guest-post-by-charles-calleros-talking-about-ra‌ce-in-the-contracts-course-interface-with-civil-right-1/ [https://perma.cc/P39Q-CNTQ]; Zalesne, The (In)Visibility of Race in Contracts, supra note 7. ↑
  11.  See Zalesne, Racial Inequality in Contracting, supra note 1, at 25–26; Chaumtoli Huq, Integrating a Racial Capitalism Framework into First-Year Contracts: A Pathway to Anti-Capitalist Lawyering, 35 J.C.R. & Econ. Dev. 181, 195 (2022) (asserting that “neutral discussions of core contracts principles, such as the unenforceability of gratuitous promises, consideration, and reliance, obscure how law maintains racial and economic subordination”); Marissa Jackson Sow, Whiteness as Contract, 78 Wash. & Lee L. Rev. 1803, 1829 (2022). ↑
  12.  Zalesne, Racial Inequality in Contracting, supra note 1, at 25–26 (asserting that assumptions of legal reasoning in contract law doctrine conceal bias); Huq, supra note 11, at 195–97 (citing Kirksey v. Kirksey, 8 Ala. 131 (1845)) (arguing that the traditional analysis of the formal contract doctrines presented in the classic Kirksey case conceals background “ploys of power and racial subordination”); see also Kastely, supra note 9, at 306 (arguing that Williams v. Walker-Thomas Furniture Co., a classic unconscionability case, fails to make explicit in its unconscionability analysis that the predatory contracts at issue involved “exploitation of low-income people of color . . . enabled in part by racist barriers”). ↑
  13.  See generally 42 U.S.C. §§ 2000e–2000e-17 (prohibiting various types of employment discrimination). ↑
  14.  See generally id. §§ 3601–3619, 3631 (prohibiting housing discrimination). ↑
  15.  See, e.g., Brown v. Bd. of Educ., 347 U.S. 483, 492–94 (1954) (holding that the racial segregation of children in public schools is unconstitutional). ↑
  16.  15 U.S.C. §§ 1691–1691f (prohibiting lending discrimination). ↑
  17.  Penningroth, supra note 4, at 1211–16, 1273; Brittany Farr, Breach by Violence: The Forgotten History of Sharecropper Litigation in the Post-Slavery South, 69 UCLA L. Rev. 674, 681–82 (2022). ↑
  18.  Professor Deborah Zalesne, however, does seem to challenge the assumption that contract law ignores race and racial discrimination in Zalesne, Racial Inequality in Contracting, supra note 1, at 24–25 (“[A] complete understanding of contract disputes routinely requires an analysis of the effects of inequality, including race dynamics, on parties’ bargaining choices.”). Although Zalesne correctly observes that courts have raised the issue of inequality of bargaining power in the context of applying the unconscionability doctrine, she does not show that courts routinely appeal to underlying racial dynamics in their legal reasoning. See generally id. See also Justin Driver, Recognizing Race, 112 Colum. L. Rev. 404, 449 (2012) (arguing that applying unconscionability in the Williams v. Walker-Thomas Furniture Co. case does not require reckoning with race). For one unconscionability case that notes racial disparities without disclosing the racial identities of the litigants, see State ex rel. King v. B & B Inv. Grp., Inc., 2014-NMSC-024, ¶¶ 13–17, 329 P.3d 658, 665–66. ↑
  19.  42 U.S.C. § 1981(a)–(c). ↑
  20.  Civil Rights Act of 1866, ch. 31, § 1, 14 Stat. 27, 27 (codified as amended at 42 U.S.C. §§ 1981–1982, 1988–1989); Civil Rights Act of 1991, Pub. L. No. 102-166, § 101, 105 Stat. 1071, 1071–72 (codified as amended at 42 U.S.C. § 1981). ↑
  21.  See infra Part I. ↑
  22.  See infra Part I. ↑
  23.  See infra Part I. ↑
  24.  See infra Part II. ↑
  25.  42 U.S.C. § 1981(b). ↑
  26.  See infra Part II. ↑
  27.  See infra Section V.A. ↑
  28.  See infra Part IV. ↑
  29.  See infra Section III.B. ↑
  30.  See infra Part I; Runyon v. McCrary, 427 U.S. 160, 168 (1976); Restatement (Second) of Conts. (Am. L. Inst. 1981). ↑
  31.  See infra Section IV.B. ↑
  32.  See infra Section IV.B. ↑
  33.  See infra Section V.B. ↑

  34.  See generally Carliss Chatman, 1981, 82 Wash. & Lee L. Rev. (forthcoming 2025), https:/‌/papers.ssrn.com/sol3/papers.cfm?abstract_id=4998718 [https://perma.cc/M8ZD-3TKN]. ↑

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