A Silver Lining to Russia’s Sanctions-Busting Clause?

In 2018, Russia began inserting an unusual clause into euro and dollar sovereign bonds, seemingly designed to circumvent future Western sanctions. The clause worked by letting the government pay in roubles if sanctions cut off access to dollar and euro payment systems. The clause received little scrutiny at the time, perhaps because Russia used a state-owned bank, rather than a global investment bank, as underwriter. But with the invasion of Ukraine and the ensuing sanctions imposed by the United States and other governments, the relevance of the clause has become clear. This Essay examines how the market reacted to the clause before and after the invasion. Our expectation was that the market would charge a premium for bonds with the clause. Investors bought euro and dollar bonds, after all, because they did not want to be paid in roubles. Yet contrary to expectations, investors seemed to prefer bonds that allowed for payment in roubles over bonds that did not. This surprising finding has considerable implications for other countries that may lose access to foreign currency for reasons that are more benign than Russia’s war of aggression. Despite its sordid provenance, Russia’s sanctions-busting clause might turn out to be a positive innovation that could benefit countries facing unexpected crises. Indeed, had Ukraine included such a clause in its bonds, the benefit would have been enormous.

Introduction

After the seizure of Crimea in 2014, the United States and other governments imposed economic sanctions on a range of Russian entities and individuals. Russia’s subsequent invasion of Ukraine in late February 2022 prompted draconian new sanctions, ranging from trade restrictions to a block on the Russian central bank’s ability to access foreign currency reserves.1.For a comprehensive timeline of sanctions imposed against Russia by the United States and other countries, see Chad P. Bown, Russia’s War on Ukraine: A Sanctions Timeline, Peterson Inst. for Int’l Econ., https://www.piie.com/blogs/realtime-economic-issues-watch/russias-war-ukraine-sanctions-timeline [https://perma.cc/MEL7-E7QH].Show More Although unprecedented in scope, it was no surprise that the United States resorted to sanctions to punish a foreign adversary. Countries have long used economic sanctions to achieve foreign policy objectives.2.Benjamin Coates, A Century of Sanctions, Current Events in Historical Perspective, Ohio St. U.: Origins (Dec. 2019), https://origins.osu.edu/article/economic-sanctions-history-trump-global?language_content_entity=en [https://perma.cc/B94U-3X9F].Show More The global dominance of the U.S. payments system, and the dollar’s dominant place among currencies, has made this a tempting practice for the United States.3.See, e.g., America’s Aggressive Use of Sanctions Endangers the Dollar’s Reign, Economist (Jan. 18, 2020), https://www.economist.com/briefing/2020/01/18/americas-aggressive-use-of-sanctions-endangers-the-dollars-reign [https://perma.cc/K2HY-SG4W]; Karen Yeung, How the US Uses the Dollar Payments System to Impose Sanctions on a Global Scale, S. China Morning Post (Aug. 25, 2020), https://www.scmp.com/economy/china-economy/article/3098691/how-us-uses-dollar-payments-system-impose-sanctions-global [https://perma.cc/M5J2-MLXA].Show More Beyond Russia, the U.S. government has used sanctions to target North Korea, Russia, Syria, Venezuela, China, and other countries, as well as institutions and individuals around the world.4.For background on the use of sanctions by the United States, see generally Sheelah Kalhatkar, Will Sanctions Against Russia End the War in Ukraine? New Yorker (Oct. 24, 2022) (documenting the progression of U.S. sanctions against Russia); Nicholas Mulder, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (2022) (tracing the international development of sanctions through World War II and their shifting scope and purpose).Show More

Foreign states naturally do not relish the prospect of being targeted by sanctions and have looked for ways to eliminate this risk.5.E.g., Frank Tang, China Warned to Prepare For Being Cut Off From US Dollar Payment System as Part of Sanctions Like Russia, S. China Morning Post (June 22, 2020), https://www.scmp.com/economy/china-economy/article/3090119/china-warned-prepare-being-cut-us-dollar-payment-system-part [https://perma.cc/YCC3-AABL]; Karen Brettell, Analysis: As Sanctions “Weaponize” US Dollar, Some Treasury Buyers Could Fall Back, Reuters (Mar. 29, 2022) (describing pressure on foreign governments to diversify their currency use the more the dollar is used as a financial weapon), https://www.reuters.com/business/finance/sanctions-weaponize-us-dollar-some-treasury-buyers-could-fall-back-2022-03-29/ [https://perma.cc/B8A5-HD7U].Show More One option is to reduce reliance on the U.S. dollar, although this requires trade and financial partners willing to deal in other currencies.6.This option inevitably prompts inquiry into whether sanctions might lead to the decline of the dollar as global reserve currency. See, e.g., Michael P. Dooley, David Folkerts-Landau & Peter M. Garber, US Sanctions Reinforce the Dollar’s Dominance (Nat’l Bureau Econ. Rsch., Working Paper No. 29943, 2022), https://www.nber.org/system/files/working_papers/w2994​3/w29943.pdf [https://perma.cc/MGW2-DTU9].Show More More commonly, foreign parties seek ways to bypass or evade U.S. sanctions.7.For a discussion of some of the responses to U.S. financial sanctions, see Pierre-Hugues Verdier, Global Banks on Trial: U.S. Prosecutions and the Remaking of International Finance 109–45 (Oxford Univ. Press 2020).Show More In this Essay, we examine one such strategy, which the Russian Federation adopted after the sanctions prompted by its annexation of Crimea. The Russian government appears to have worried—presciently, as it turns out—that future sanctions would force it to default on its international debt. It sought to prevent this by clever contract drafting.

In 2016, the Russian government was already sanctioned and anticipated that its future conduct might trigger even harsher sanctions. It began to include an “Alternate Payment Currency” (APC) clause in its international bonds—that is, bonds denominated in foreign currency.8.See Lev E. Breydo, Russia’s Bond Roulette, Am. Bar Ass’n (May 20, 2022), https://www.americanbar.org/groups/business_law/publications/blt/2022/06/russia-bond-roulette/ [https://perma.cc/5TEZ-ZGJ9].Show More The clause lets the government pay in an alternative currency if, “for reasons beyond its control,” it cannot pay in the currency specified in the bond. The APC clause first appeared in a U.S. Dollar (USD)-denominated bond and specified alternative currencies over which the Russian government had no control: Euros, Pound sterling, and Swiss francs.9.Prospectus for Russian Federation 4.75% USD bonds due 2026, at 3 (May 26, 2016), https://ise-prodnr-eu-west-1-data-integration.s3-eu-west-1.amazonaws.com/legacy/Prospectu​s+-+Standalone_7cc3442b-cb8c-4394-bc26-33f9ce656e56.pdf [https://perma.cc/YDY6-8A​NP].Show More But, since March 2018, the country’s international bonds have included Russia’s rouble in the list of alternatives. It is the last option; the country must pay in foreign currency if possible. But if not, it can pay in roubles. The meaning of this clause has not been tested in court. At least arguably, the clause lets the Russian government avoid a debt default by paying bondholders in roubles when financial sanctions shut it off from the dollar payment system.

The APC clause is exceptional for multiple reasons. For one thing, we cannot think of other cases in which a country’s sovereign bonds have included an explicit sanctions-busting mechanism. For another, the clause functions as a sort of force majeure clause. In its classic sense, a force majeure clause temporarily excuses a party’s non-performance of its contractual obligations when circumstances outside its control make performance impossible.10 10.Anthony Michael Sabino, The Force Majeure Awakens, N.Y. L.J. (May 16, 2022), https://www.law.com/newyorklawjournal/2022/05/16/the-force-majeure-awakens/ [https://perma.cc/3KBJ-QYRX]. These clauses received considerable attention as a result of the COVID-19 pandemic, since there was considerable debate as to whether the pandemic was a force majeure event. See e.g., Andrew A. Schwartz, Contracts and COVID-19, 73 Stan. L. Rev. 48, 56–58 (2020).Show More But sovereign bonds generally do not include force majeure clauses; the sovereign’s payment obligation is unconditional. In sovereign debt markets, the closest thing to a force majeure clause is the so-called Natural Disaster clause, which allows the issuer to defer payments in the event of a qualifying natural disaster.11 11.Sui-Jim Ho & Stephanie Fontana, Sovereign Debt Evolution: The Natural Disaster Clause, 11 Emerging Mkts. Restructuring J. 5, 5 (2021).Show More Rather than provide for a suspension of payments, the APC clause allows the debtor to use its domestic currency when it cannot access foreign currency.

The formulation of the APC clause as an option to pay in domestic currency has implications beyond the sanctions context. The clause applies to all circumstances where the sovereign cannot access foreign currency for reasons beyond its control. Historically, a loss of such access is a primary reason why sovereigns encounter financial distress.12 12.Barry Eichengreen, Asmaa El-Ganainy, Rui Pedro Esteves & Kris James Mitchener, Public Debt Through the Ages, in Sovereign Debt 7, 33–36 (S. Ali Abbas ed., 2019).Show More The APC clause thus provides a contractual escape hatch from what economists refer to as the problem of “original sin.”13 13.For the classic work on this topic, see Barry Eichengreen, Ricardo Hausmann & Ugo Panizza, The Mystery of Original Sin, in Other People’s Money: Debt Denomination and Financial Instability in Emerging Market Economies (Barry Eichengreen & Ricardo Hausmann eds., 2005); Ricardo Hausmann & Ugo Panizza, Redemption or Abstinence? Original Sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium, 2 J. Globalization & Dev. 1 (2011).Show More A country that cannot borrow abroad in its own currency exposes itself to exchange rate volatility and other risks that can undermine economic stability. High interest rates or weak commodity prices can prompt a debt crisis, which can be avoided if the borrower can temporarily resort to payment in domestic currency. Emerging market borrowers have gradually shifted more of their borrowing into domestic currency, but many have substantial debts denominated in foreign currencies. It may be that Russia, despite causing global chaos and a humanitarian disaster in Ukraine, has inadvertently created a contractual innovation that could benefit other borrowers.

However, the benefit of the APC clause depends on its price. One reason countries borrow in foreign currency is that it is cheaper to do so. A key question, then, is what the pricing implications of using the APC clause have been. How much did the markets charge Russia for the clause? And, once events occurred that brought the clause into play, how did the markets react? In this Essay, we use data on Russian bond prices to analyze these questions.

Our prediction was that the market would charge Russia a premium for using the APC clause. This is because investors who buy international bonds generally do not wish to be repaid in the borrower’s domestic currency, and also because investors might interpret the mere presence of the clause as a signal that Russia anticipated engaging in conduct that would prompt additional sanctions. Conceivably, this premium would not be apparent at the time of issuance. The financial press covered the introduction of the rouble APC clause in 2018, so it could hardly have escaped investors’ notice.14 14.E.g., Jonathan Wheatley, Russia Bond Sales Allow Payments in Alternative Currencies, Fin. Times (Mar. 17, 2018), https://www.ft.com/content/69da000c-2915-11e8-b27e-cc62a39d57a0 [https://perma.cc/UVN8-8Y9J].Show More At the time, however, investors may have been sanguine about the prospect of future sanctions. Certainly, Russia was viewed as a strong creditor, and the bonds were heavily oversubscribed. But during late 2021 and early 2022, the prospect of an invasion of Ukraine became increasingly real. We expected that the market penalty for APC bonds would increase once the invasion (and, thus, additional sanctions) grew increasingly certain.

Markets did not react as we expected. Initially, the market seemed indifferent to the clause, even as Russian forces massed on the Ukrainian border. Once the invasion occurred, the market seemed to wake up to the presence of the APC clause. But rather than charge a premium for APC bonds, as we had expected, the market seemed to value them more highly than comparable bonds without the clause. Although there are dynamics unique to Russian sovereign debt, these findings also suggest that, despite its provenance, the Russian APC clause might be a positive innovation from which other countries facing the risk of unexpected crises could benefit. Indeed, Ukraine itself, which likely faces an unpayable debt burden due to the Russian invasion, would have realized an enormous benefit from such a clause.

I. Background on the APC Clause

The core feature of the APC clause is that it allows the issuer of a dollar or euro bond to pay in roubles if neither the designated currency nor a list of stable alternative currencies is available, and the reason is outside the control of the issuer. As an example, here is the relevant text of the APC clause in a 2019 issuance of dollar bonds by the Russian Federation:

Notwithstanding any other provision in these Conditions, if, for reasons beyond its control, the Russian Federation is unable to make payments of principal or interest (in whole or in part) in respect of the Bonds in U.S. dollars (an “Alternative Payment Currency Event”), the Russian Federation shall make such payments (in whole or in part) in the Alternative Payment Currency on the due date at the Alternative Payment Currency Equivalent of any such U.S. dollar-denominated amount…

….

“Alternative Payment Currency” means Euros, Pound sterling or Swiss francs or, if for reasons beyond its control the Russian Federation is unable to make payments of principal or interest (in whole or in part) in respect of the Bonds in any of these currencies, Russian roubles.15 15.Prospectus for Russian Federation 5.10% USD bonds due 2035, at 66–68 (Mar. 26, 2019), [https://perma.cc/3YBJ-8MYV].Show More

Several aspects of the clause are noteworthy. First, of course, is that it lets the government pay in roubles under circumstances in which, but for the APC clause, it would likely be forced into a payment default. Second, the right to pay in roubles is triggered only if the government cannot pay in a preferred currency “for reasons beyond its control.” The contract does not say when circumstances are outside the Russian government’s control, but the clause is broad enough to cover the types of circumstances that get many emerging markets into trouble (for example, currency outflows that create a liquidity crisis). As events have turned out, Russia has not attempted to invoke the clause, and it is an open question whether the present circumstances are outside its control.16 16.The Russian government has indicated that it intends to pay all of its international bonds in roubles. The Associated Press, Russia Says it Will Pay Foreign Debt in Rubles After U.S. Ban, Associated Press News (May 25, 2022), https://apnews.com/article/russia-ukraine-janet-yellen-government-and-politics-65af86cf89023fbc213c54ab11f212ee [https://perma.cc/29H3-2G54]. This is a default for non-APC bonds and at least a technical default under the APC bonds, since the government has not complied with notice and other procedures applicable to rouble payments. But these are relatively recent developments.Show More Western sanctions are the proximate cause of Russia’s inability to make dollar and euro payments, and Russia cannot directly control the sanctions. But it could presumably entice Western governments to remove them by withdrawing from Ukraine and credibly committing to respect the country’s borders. The question would have to be decided by a court applying English law (the law designated in the contract).

However, it is not a stretch to interpret the APC clause to allow payment in roubles. It does seem that the intent of the clause was to address the scenario in which sanctions cut off access to dollar and euro payment systems. The prospectuses for the APC bond issuances explicitly point to the risk that Western sanctions might jeopardize Russia’s ability to pay in foreign currency.17 17.See Mark Weidemaier & Mitu Gulati, Should Investors Who Care About ESG Buy Russian Sovereign Bonds?, Credit Slips (Mar. 15, 2022), https://www.creditslips.org/credit​slips/2022/03/should-investors-who-care-about-esg-buy-russian-sovereign-bonds.html [https​://perma.cc/EN8T-4JF6].Show More For example, the prospectus for sovereign bonds issued in 2020 details the history of Western sanctions, warns that “continued geopolitical tensions” and new sanctions might put downward pressure on the rouble, and cautions that this might “adversely affect … the Russian Federation’s ability to repay its debt denominated in currencies other than the rouble, including amounts due under the Bonds.”18 18.Prospectus for EUR 750 million 1.125% bonds due 2027, at 17 (Nov. 18, 2020), https://www.creditslips.org/files/nov-2020-prospectus.pdf [https://perma.cc/W6JB-TKRF].Show More Courts generally interpret contracts in a manner consistent with the parties’ presumed intent. This language implies that the intent of the APC clause is to allow payment in roubles when sanctions cut off access to other currencies.19 19.E.g., Guy Faulconbridge & Karin Strohecker, Russia Warns Sovereign Bond Holders That Payments Depend on Sanctions, Reuters (Mar. 6, 2022), https://www.reuters.​com/markets/rates-bonds/russia-says-sovereign-bond-payments-will-depend-sanctions-2022-03-06/ [https://perma.cc/B5T8-4JEY] (noting that the APC was put into bonds in the wake of western sanctions that were imposed as a result of Russia’s Crimean incursion in 2014); Wheatley, supra note 14 (same).Show More Moreover, Gazprom, Russia’s state-owned energy company, also has issued APC bonds. Gazprom has an even better argument for paying in roubles, since its conduct did not prompt the sanctions. We do not think the issue is clear cut for either bond issuer. Bondholder lawsuits probably would be heard by courts in London, and the United Kingdom is one of the sanctioning countries. An English court might be unwilling to let Russian parties continue to pay bondholders in roubles.20 20.For a discussion of this rather unclear basis on which courts across different legal settings periodically invalidate contracts, see Farshad Ghodoosi, The Concept of Public Policy in Law, 94 Neb. L. Rev. 685, 711 (2016); Percy H. Winfield, Public Policy in the English Common Law, 42 Harv. L. Rev. 76, 88, 93 (1928) (discussing differences among judges as to when public policy should void a contract).Show More But it is at least plausible that a court would interpret the clause to allow rouble payments.

So interpreted, the APC clause establishes a mechanism for evading sanctions and, at least potentially, avoiding a payment default. That is a clear benefit to Russia. And while investors who receive rouble payments might worry that the Russian government will manipulate exchange rates or impose capital controls, these are not certainties given the government’s apparent determination to maintain good relations with the market.21 21.The bond contracts are not entirely clear, but they appear to give the Russian government room to manipulate the exchange rate by allowing the NSD, an arm of the Russian government acting as its central securities depository, to determine the exchange rate by reference to the rates quoted by banks in Moscow.Show More

II. Empirical Analysis

We base our analysis on a dataset of sovereign and Gazprom bond issuances as reported on Bloomberg. Overall, we have data on 28 issuances. For simplicity, we focus the empirical analysis on bond pairs, although we have replicated our analysis using bond portfolios. We selected eight bonds with similar maturities to study the impact of the APC clause on the yield spread: two sovereign bonds in roubles, two sovereign bonds in U.S. dollars, two Gazprom bonds in U.S. dollars, and two Gazprom bonds in euros.

Figure 1 shows the daily yield to maturity for the pair of sovereign bonds issued in U.S. dollars.22 22.The pair consists of USD bonds with relatively closely matched maturities: June 23, 2027, for the non-APC bond (“no clause”) and March 21, 2029, for the APC bond (“clause”). Figure 1: Panel A shows the yield to maturity from January 1, 2019, to December 31, 2021; Panel B from January 1, 2022, to September 21, 2022, and Panel C from January 1, 2019, to September 21, 2022.Show More First, we observe a big jump in the yield for both bonds on the date of the Russian invasion (February 24, 2022). Second, from the beginning of 2019 through the date of the invasion, the yield on the two bonds was quite close. On average, over the pre-invasion time period, the yield of the bond with the APC clause is slightly higher than the bond without the clause, but the difference is not statistically significant. After the invasion, the relationship flips and increases considerably in both magnitude and significance. This implies that the market perceived APC bonds as less risky than non-APC bonds. This is the opposite of what we expected.

FIGURE 1. Yield to maturity, percentage, USD sovereign pair.

Panel A. January 1, 2019–December 31, 2021. Panel B. January 1, 2022–September 21, 2022.
                                                                                    Panel C. January 1, 2019–September 21, 2022.

We also analyze pairs of dollar- and euro-denominated Gazprom bonds and observe the same dynamics. Indeed, the pattern is even clearer.23 23.The Gazprom USD pair consists of a non-APC bond maturing March 23, 2027, and an APC bond maturing February 25, 2030. The EUR pair includes a non-APC bond maturing November 17, 2023, and an APC bond maturing April 15, 2025.Show More As shown in Figures 2 and 3, there is basically no pricing difference between APC and non-APC bonds until the invasion. 24 24.Figures 2 and 3: Panel A shows the yield to maturity from January 1, 2019, to December 31, 2021; Panel B from January 1, 2022, to September 21, 2022, and Panel C from January 1, 2019, to September 21, 2022.Show More After that, yields spike for both bonds but dramatically more for the non-APC bond. Again, post-invasion investors seem to view APC bonds as less risky than comparable bonds without the clause.

As a contrast, the pair of sovereign bonds issued in roubles shows little change due to the conflict (Figure 4).25 25.Figure 4: Panel A shows the yield to maturity from January 1, 2019, to December 31, 2021; Panel B from January 1, 2022, to September 21, 2022, and Panel C from January 1, 2019, to September 21, 2022.Show More Neither bond shows an abrupt jump, suggesting that investors with rouble bonds were confident of continuing to get paid even after Russia invaded Ukraine and was subject to severe western sanctions.

FIGURE 2. Yield to maturity, percentage, USD Gazprom pair.

Panel A. January 1, 2019–December 31, 2021. Panel B. January 1, 2022–September 21, 2022.
Panel C. January 1, 2019–September 21, 2022.

Continue reading “A Silver Lining to Russia’s Sanctions-Busting Clause?”

On Rawlsian Contractualism and the Private Law

Introduction: Paradigm Shift and the Rejection of the Conventional View

Shifts in academic paradigms are rare. Still, it was not long ago that the values taken to govern the private law were thought to be distinct from the values governing taxation and transfer. This was thought to be true, although for different reasons, in both philosophical and economic accounts of private law. The question was, for example, whether the law of contract and tort is properly governed by the values of autonomy and corrective justice or by distributive concerns instead. The conventional, indeed, the nearly universal view of Rawlsianism—the overwhelmingly dominant theory of liberalism and distributive justice—was that the private law lies beyond the scope of Rawls’s two principles of justice.1.See, e.g., Bruce A. Ackerman, Social Justice in the Liberal State 195 (1980); David Lyons, Ethics and the Rule of Law 131–32 (1984) (asserting “the principles of justice” “do not apply to private arrangements and transactions”); Anthony T. Kronman, Contract Law and Distributive Justice, 89 Yale L.J. 472, 474, 477 (1980) (noting the “unconcern with the distributive consequences of . . . private arrangements”).Show More

Simply put, for Rawlsianism, the private law was not thought to be the province of distributive concerns. In more academic terms, the private law is not properly understood to be subject to Rawls’s range-limited principles of justice. In this conventional view, the private law is not part of what Rawls describes as “the basic structure of society,” which is roughly limited to basic constitutional liberties and taxation and transfer. This view invites the conclusion that Rawlsian political philosophy—despite its lexically ordered, distributive demand that economic institutions are to be arranged to the maximal benefit of the least well-off—is stunningly neutral with respect to the economic arrangements and ordering of the private law. This thinking led to the conclusion that the private law, if it is to exist, may be justified by values or principles other than Rawls’s lexically ordered principles of justice, whether wealth-maximization, autonomy, or pre-conceived or even pre-political notions of property entitlement.2.Kevin A. Kordana & David H. Tabachnick, Rawls and Contract Law, 73 Geo. Wash. L. Rev. 598, 599–600 (2005) [hereinafter Kordana & Tabachnick, Rawls & Contract].Show More

At the same time, the dominant view in law and economics has been that the private law should be sanitized of egalitarian or equity-oriented values.3.Louis Kaplow & Steven Shavell, Why the Legal System Is Less Efficient than the Income Tax in Redistributing Income, 23 J. Legal Stud. 667, 667–69 (1994).Show More The seductive idea was that any desired egalitarian moves could be achieved more efficiently through systems of income taxation and transfer than through any egalitarian alterations in private law rules. The conclusion was that the private law should be constructed to maximize wealth (e.g., optimal deterrence in tort), leaving equity-oriented demands for the system of income taxation and transfer.4.Id.Show More The argument’s invited conclusion was that any egalitarian (i.e., non-wealth-maximizing) adjustments to private law rules are inefficient, even if well-intentioned, private law constructions. If one conjoins the conclusions of both arguments, even a Rawlsian arguably ought to adopt the wealth maximizing conception of the private law.

Our early work, arguing against the conventional view, lead to a sustained analysis of this law and economics argument as well.5.David Blankfein-Tabachnick & Kevin A. Kordana, Kaplow and Shavell and the Priority of Income Taxation and Transfer, 69 Hastings L.J. 1 (2017). In outlining what he terms the three most crucial scholarly “caveats” to Kaplow and Shavell’s argument, Guttentag writes,A second caveat to the double-distortion presumption has to do with property rights. . . . Blankfein-Tabachnick and Kordana argue that taking property rights as a given is deeply problematic for the double-distortion presumption because property rights themselves are a creation of the legal system. Moreover, property rights have significant effects on the distribution of income and wealth.Michael D. Guttentag, Law, Taxes, Inequality, and Surplus, 102 B.U. L. Rev. 1329, 1336–37 (2022).Show More We have argued that there is an “entitlement” flaw in both conventional approaches.6.Blankfein-Tabachnick & Kordana, supra note 5, at 8; Kevin A. Kordana & David H. Tabachnick, Taxation, the Private Law, and Distributive Justice, 23 Soc. Phil. & Pol’y 142, 163 (2006) (“Kaplow and Shavell appear to assume the existence of an underlying system of propertyownership and free markets. [The] issue, however, is the very question of the form that property rules should take; that is, we are interested in the question of whether the equity-oriented values that differing theorists hold are best met through tax and transfer, or through (in part) the rules of property law. Thus, it is not clear that Kaplow and Shavell’s discussion, which compares tax and transfer to a tort rule (in isolation) and concludes that tax and transfer is superior in terms of economic efficiency, would (also) apply to the question of the underlying set of property rules.”).Show More Despite well-entrenched views on both sides, our objection has been well-received,7.Kordana & Tabachnick, Rawls & Contract, supra note 2, at 632 (“Our conclusions are bold. . . . [C]ontrary to the conventionally held narrow conception, contract law is within the basic structure . . . [and] the door is open for a deeper understanding of the role that private law plays in Rawlsian political philosophy—it is no longer accurate to believe that Rawlsianism is silent on matters of contract and private ordering . . . .”). Shapiro, for example, notes the similarity between our position in Kordana & Tabachnick, Rawls & Contract, supra note 2, and the recent scholarship, aptly drawing conclusions from the perspective of the new paradigm, taking its baseline as given. Matthew A. Shapiro, Distributing Civil Justice, 109 Geo. L.J. 1473, 1531 (2021). “Rawls’s theory thus does not defuse the conflicts between distributive justice and the liberal state’s other roles so much as deny them, by assigning distributive justice effective, if not formal, priority over other imperatives.” Id. at 1532. He then contrasts the new baseline with that of the former “conventional” view, ably recognizing the conflict within that view, and holding that it is “[o]nly by diluting the requirements of distributive justice” that one might “manage to harmonize them with [backward-looking or deontic] dispute resolution and rights enforcement.” Id. at 1533.Show More and change is upon the legal academy. A wide range of scholars have begun to reject these two conventional views.8.See, e.g., Samuel Scheffler, Distributive Justice, the Basic Structure and the Place of Private Law, H.L.A. Hart Memorial Lecture (May 2014), in 35 Oxford J. Legal Stud. 213, 233 (2015); Samuel Freeman, Liberalism and Distributive Justice 168, 192–93 (2018) (arguing Rawls’s principles apply to the private law); Richard L. Revesz, Regulation and Distribution, 93 N.Y.U. L. Rev. 1489, 1518 (2018) (asserting distributional concerns, not just wealth maximization, should play a broader role in regulation).Show More But in our view, scholars have not always fully recognized what we take to be the full ramifications of the private law being constructed by distributive principles.9.E.g., Arthur Ripstein, Private Wrongs 291 (2016); Freeman, supra note 8, at 185; Zachary Liscow, Note, Reducing Inequality on the Cheap: When Legal Rule Design Should Incorporate Equity as Well as Efficiency, 123 Yale L.J. 2478, 2486–87 (2014).Show More

As we say, academic paradigm shifts are rare; being at the center of one is rarer still. We are honored that the Virginia Law Review has provided us an opportunity to continue the dialogue that proceeds at the heights of the legal academy. In what follows, we aim to discuss our position regarding Rawlsian private law while engaging with scholars who have further developed this complex debate. Ultimately, we hold that, despite the purported complications, there is, as we path-breakingly argue, a Rawlsian account of the private law.

For Rawls, the “basic structure” of society is understood to embody political and legal institutions that materially affect citizens’ life prospects, such as basic constitutional liberties, security of the person, the system of taxation and transfer, schooling, and fiscal policy. These institutions are taken to be subject to and governed by what Rawls famously calls “the two principles of justice.”10 10.John Rawls, Justice as Fairness: A Restatement 42–43 (2001) [hereinafter Rawls, JaF] (“The two principles of justice [state] (a) Each person has the same indefeasible claim to a fully adequate scheme of equal basic liberties . . . and (b) Social and economic inequalities are to satisfy two conditions: first, they are to be attached to offices and positions open to all under conditions of fair equality of opportunity; and second, they are to be to the greatest benefit of the least-advantaged members of society (the difference principle).”).Show More However, significant scholarly controversy has arisen over the question of whether the private law (e.g., contract, tort, property, etc.) is properly understood to be within the basic structure of society.11 11.As we noted supra note 1, Bruce Ackerman, David Lyons, and Anthony Kronman held the conventional or narrow view that private law lies outside the basic structure. But cf. Kronman, supra note 1, at 475 (suggesting that Rawls should not have narrowed). Scheffler posits that Ripstein views private law as lying within the basic structure, Scheffler, supra note 8, at 232 (“Suppose we accept that, although private law is part of the basic structure, there is nevertheless room for it to enjoy the limited independence from distributive principles that Ripstein envisions.”), but this view is contested. See Kevin A. Kordana & David H. Tabachnick, On Belling the Cat: Rawls and Tort as Corrective Justice, 92 Va. L. Rev. 1279, 1291–92 (2006) [hereinafter Kordana & Tabachnick, Belling the Cat] (interpreting Ripstein as holding the narrow view); Freeman, supra note 8, at 168 (“[For] Ripstein . . . private law ‘has a certain kind of independence’ and should lie outside the basic structure . . . ”). In his newer work, Ripstein side-steps the question. Ripstein, supra note 9, at 291 (“The specifics of Rawls’s formulation need not concern us . . . .”). Murphy holds that the private law is inside the basic structure and that any attempt at narrowing in Rawls’s The Basic Structure as Subject is predicated on a textual mistake. Liam Murphy, Institutions and the Demands of Justice, 27 Phil. & Pub. Affs. 251, 261 & n.30 (1999); Liam Murphy, The Artificial Morality of Private Law: The Persistence of An Illusion, 70 U. Toronto L.J. 453, 457 n.11 (2020) [hereinafter Murphy, Artificial Morality] (“Rawls himself proposed evaluating institutions such as property and contract solely on the basis of social justice as identified by his two principles, which do not obviously have room for values distinctively associated with private ordering.”). Freeman and Scheffler agree that the private law is part of the basic structure. See Scheffler, supra note 8; Freeman, supra note 8; see also Aditi Bagchi, Distributive Injustice and Private Law, 60 Hastings L.J. 105, 109–11 (2008) (discussing the role of distributive justice in contract law).Show More

The controversy over the question of the breadth of the basic structure is understandable: Rawls is believed to have been less than perfectly consistent. But, with regard to the specific relationship between the private law and the basic structure, we have argued that the historically conventional view—that private law is beyond the reach of the two principles of justice—must be mistaken.

It is important to understand what is at issue in this debate. It is neither a mere scholastic exercise, nor a simple game of words; significant matters of social and economic justice are at stake. Consider, for example, the so-called “causal” requirement in tort law—typically associated with the corrective justice conception. The idea here is that, from the perspective of a consequentialist approach, tort liability ought to be constrained: tort defendants are taken to be liable only for harm they have “caused” plaintiffs and they owe a duty of repair only to such plaintiffs. This “bilateral” or interpersonal relationship, although stated several ways, is central, for example, to backward-looking approaches to tort, even despite the contested status of the concept of causation.12 12.H.L.A. Hart & A.M. Honoré, Causation in the Law 58 (1959).Show More

While the causal requirement may be a necessary condition to a number of conceptions of justice, it can also serve as a significant impediment to otherwise seemingly just “systems” or distributive approaches to accident management.13 13.Guido Calabresi, Toward A Unified Theory of Torts, 1 J. Tort L. 1, 1 (2007) (“Yes, all that can go out of torts . . .”—referring to causation and the other “hornbook [elements] of liability”—“but tort law won’t cease being.”).Show More Consider for example, unjustified risk-taking,14 14.George P. Fletcher, Fairness and Utility in Tort Theory, 85 Harv. L. Rev. 537, 540–43 (1972).Show More whether reckless or negligent. Such activity, absent an actualized harm, is insufficient to incurring tortious liability. So, ex ante accident management systems that focus on liability for unjustified risk imposition are objectionable for failing to satisfy the causal requirement. Still, ex ante liability, properly and narrowly assigned, is an important tool in the social planning and institutional design of accident management. It is useful, for example, in cost spreading and deterrence,15 15.Guido Calabresi, The Costs of Accidents: A Legal and Economic Analysis 70 (1970).Show More both of which can be instrumental to achieving certain accounts of social justice.16 16.John Rawls, A Theory of Justice 212–13 (2d ed. 1999) [hereinafter Rawls, TJ] (considering the possibility of strict liability).Show More

Indeed, our own legal system regulates driving a motor vehicle not only with tort, but also with criminal law. The latter imposes liability for what might be termed risk imposition even in the absence of harm caused—for example, penalties for speeding, driving under the influence, and violating various other traffic laws. If tort law were to be subject to the goals of social planning and distributive justice, say, a special concern for the least well-off or people most likely to bear the cost of accidents, swaths of the causal requirement may need to be jettisoned. In addition to the traffic example, market share liability, where liability is predicated upon plaintiffs’ share of a market in faulty products, as opposed to causation, also might be a common approach to tort liability and accident management. While the imposition of liability in these instances fails to comport with the traditionalist causal requirement, it may be crucial to certain forms of accident management, whether conducive to advancing the position of the poor or creating optimal deterrence with the aim of wealth creation.17 17.See, e.g., Richard A. Posner, Economic Analysis of Law 241–45 (9th ed. 2014); A. Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 Harv. L. Rev. 869, 918–20 (1999) (noting defendants should face liability above the harm caused when their gain is socially illicit).Show More

  1. See, e.g., Bruce A. Ackerman, Social Justice in the Liberal State 195 (1980); David Lyons, Ethics and the Rule of Law 131–32 (1984) (asserting “the principles of justice” “do not apply to private arrangements and transactions”); Anthony T. Kronman, Contract Law and Distributive Justice, 89 Yale L.J. 472, 474, 477 (1980) (noting the “unconcern with the distributive consequences of . . . private arrangements”).
  2. Kevin A. Kordana & David H. Tabachnick, Rawls and Contract Law, 73 Geo. Wash. L. Rev. 598, 599–600 (2005) [hereinafter Kordana & Tabachnick, Rawls & Contract].
  3. Louis Kaplow & Steven Shavell, Why the Legal System Is Less Efficient than the Income Tax in Redistributing Income, 23 J. Legal Stud. 667, 667–69 (1994).
  4. Id.
  5. David Blankfein-Tabachnick & Kevin A. Kordana, Kaplow and Shavell and the Priority of Income Taxation and Transfer, 69 Hastings L.J. 1 (2017). In outlining what he terms the three most crucial scholarly “caveats” to Kaplow and Shavell’s argument, Guttentag writes,A second caveat to the double-distortion presumption has to do with property rights. . . . Blankfein-Tabachnick and Kordana argue that taking property rights as a given is deeply problematic for the double-distortion presumption because property rights themselves are a creation of the legal system. Moreover, property rights have significant effects on the distribution of income and wealth.Michael D. Guttentag, Law, Taxes, Inequality, and Surplus, 102 B.U. L. Rev. 1329, 1336–37 (2022).
  6. Blankfein-Tabachnick & Kordana, supra note 5, at 8; Kevin A. Kordana & David H. Tabachnick, Taxation, the Private Law, and Distributive Justice, 23 Soc. Phil. & Pol’y 142, 163 (2006) (“Kaplow and Shavell appear to assume the existence of an underlying system of property ownership and free markets. [The] issue, however, is the very question of the form that property rules should take; that is, we are interested in the question of whether the equity-oriented values that differing theorists hold are best met through tax and transfer, or through (in part) the rules of property law. Thus, it is not clear that Kaplow and Shavell’s discussion, which compares tax and transfer to a tort rule (in isolation) and concludes that tax and transfer is superior in terms of economic efficiency, would (also) apply to the question of the underlying set of property rules.”).
  7. Kordana & Tabachnick, Rawls & Contract, supra note 2, at 632 (“Our conclusions are bold. . . . [C]ontrary to the conventionally held narrow conception, contract law is within the basic structure . . . [and] the door is open for a deeper understanding of the role that private law plays in Rawlsian political philosophy—it is no longer accurate to believe that Rawlsianism is silent on matters of contract and private ordering . . . .”). Shapiro, for example, notes the similarity between our position in Kordana & Tabachnick, Rawls & Contract, supra note 2, and the recent scholarship, aptly drawing conclusions from the perspective of the new paradigm, taking its baseline as given. Matthew A. Shapiro, Distributing Civil Justice, 109 Geo. L.J. 1473, 1531 (2021). “Rawls’s theory thus does not defuse the conflicts between distributive justice and the liberal state’s other roles so much as deny them, by assigning distributive justice effective, if not formal, priority over other imperatives.” Id. at 1532. He then contrasts the new baseline with that of the former “conventional” view, ably recognizing the conflict within that view, and holding that it is “[o]nly by diluting the requirements of distributive justice” that one might “manage to harmonize them with [backward-looking or deontic] dispute resolution and rights enforcement.” Id. at 1533.
  8. See, e.g., Samuel Scheffler, Distributive Justice, the Basic Structure and the Place of Private Law, H.L.A. Hart Memorial Lecture (May 2014), in 35 Oxford J. Legal Stud. 213, 233 (2015); Samuel Freeman, Liberalism and Distributive Justice 168, 192–93 (2018) (arguing Rawls’s principles apply to the private law); Richard L. Revesz, Regulation and Distribution, 93 N.Y.U. L. Rev. 1489, 1518 (2018) (asserting distributional concerns, not just wealth maximization, should play a broader role in regulation).
  9. E.g., Arthur Ripstein, Private Wrongs 291 (2016); Freeman, supra note 8, at 185; Zachary Liscow, Note, Reducing Inequality on the Cheap: When Legal Rule Design Should Incorporate Equity as Well as Efficiency, 123 Yale L.J. 2478, 2486–87 (2014).
  10. John Rawls, Justice as Fairness: A Restatement 42–43 (2001) [hereinafter Rawls, JaF] (“The two principles of justice [state] (a) Each person has the same indefeasible claim to a fully adequate scheme of equal basic liberties . . . and (b) Social and economic inequalities are to satisfy two conditions: first, they are to be attached to offices and positions open to all under conditions of fair equality of opportunity; and second, they are to be to the greatest benefit of the least-advantaged members of society (the difference principle).”).
  11. As we noted supra note 1, Bruce Ackerman, David Lyons, and Anthony Kronman held the conventional or narrow view that private law lies outside the basic structure. But cf. Kronman, supra note 1, at 475 (suggesting that Rawls should not have narrowed). Scheffler posits that Ripstein views private law as lying within the basic structure, Scheffler, supra note 8, at 232 (“Suppose we accept that, although private law is part of the basic structure, there is nevertheless room for it to enjoy the limited independence from distributive principles that Ripstein envisions.”), but this view is contested. See Kevin A. Kordana & David H. Tabachnick, On Belling the Cat: Rawls and Tort as Corrective Justice, 92 Va. L. Rev. 1279, 1291–92 (2006) [hereinafter Kordana & Tabachnick, Belling the Cat] (interpreting Ripstein as holding the narrow view); Freeman, supra note 8, at 168 (“[For] Ripstein . . . private law ‘has a certain kind of independence’ and should lie outside the basic structure . . . ”). In his newer work, Ripstein side-steps the question. Ripstein, supra note 9, at 291 (“The specifics of Rawls’s formulation need not concern us . . . .”). Murphy holds that the private law is inside the basic structure and that any attempt at narrowing in Rawls’s The Basic Structure as Subject is predicated on a textual mistake. Liam Murphy, Institutions and the Demands of Justice, 27 Phil. & Pub. Affs. 251, 261 & n.30 (1999); Liam Murphy, The Artificial Morality of Private Law: The Persistence of An Illusion, 70 U. Toronto L.J. 453, 457 n.11 (2020) [hereinafter Murphy, Artificial Morality] (“Rawls himself proposed evaluating institutions such as property and contract solely on the basis of social justice as identified by his two principles, which do not obviously have room for values distinctively associated with private ordering.”). Freeman and Scheffler agree that the private law is part of the basic structure. See Scheffler, supra note 8; Freeman, supra note 8; see also Aditi Bagchi, Distributive Injustice and Private Law, 60 Hastings L.J. 105, 109–11 (2008) (discussing the role of distributive justice in contract law).
  12. H.L.A. Hart & A.M. Honoré, Causation in the Law 58 (1959).
  13. Guido Calabresi, Toward A Unified Theory of Torts, 1 J. Tort L. 1, 1 (2007) (“Yes, all that can go out of torts . . .”—referring to causation and the other “hornbook [elements] of liability”—“but tort law won’t cease being.”).
  14. George P. Fletcher, Fairness and Utility in Tort Theory, 85 Harv. L. Rev. 537, 540–43 (1972).
  15. Guido Calabresi, The Costs of Accidents: A Legal and Economic Analysis 70 (1970).
  16. John Rawls, A Theory of Justice 212–13 (2d ed. 1999) [hereinafter Rawls, TJ] (considering the possibility of strict liability).
  17. See, e.g., Richard A. Posner, Economic Analysis of Law 241–45 (9th ed. 2014); A. Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 Harv. L. Rev. 869, 918–20 (1999) (noting defendants should face liability above the harm caused when their gain is socially illicit).

The Promise and Perils of Private Enforcement

A new crop of private enforcement suits is sprouting up across the country. These laws permit people to bring enforcement actions against those who aid or induce abortions, against schools that permit transgender students to use bathrooms consistent with their gender identities, and against schools that permit transgender students to play on sports teams consistent with their gender identities. Similar laws permit people to bring enforcement actions against schools that teach critical race theory and against those who sell restricted firearms. State legislatures are considering a host of laws modeled on these examples, along with other novel regimes. These are new adaptations of private enforcement regimes—laws that task members of the public with enforcing regulatory statutes in court. Private enforcement has a somewhat long lineage in U.S. law, dating back to at least the nineteenth century. Since then, in contexts as diverse as employment discrimination, housing discrimination, antitrust, securities, and other contexts, the U.S. legal system has endowed members of the public with the power to enforce regulatory law in court. While these traditional forms of private enforcement have been relatively stable and survived legal challenges, the new adaptations cropping up have prompted challenges in court and intense debate. Among other things, scholars argue that they amount to a form of legal vigilantism, suppress existing legal rights, and pose due process concerns in their design. Yet, to fully distinguish between private enforcement’s traditional forms and these new variations, we need a richer account of the meaning and role of private enforcement in democracy.

This Article provides such an account, analyzing and distinguishing private enforcement regimes through the lens of a participatory democracy theory of regulatory governance. Drawing on debates and thinking at the dawn of the modern regulatory state, this Article argues that private enforcement is democratically valuable when it (1) evens out structural power disparities that can undermine democracy, (2) enables members of the public to bring the expertise of experience to dynamic regulatory environments, and (3) facilitates democratic deliberation. This Article argues that traditional private enforcement suits generally contribute to democratic governance under each rationale. In contrast, the new private enforcement suits perform less well, and indeed, often undermine the rationales for popular participation in regulatory governance. This Article thus articulates a richer theory of popular participation in regulatory governance that shows the promise of private enforcement generally and the perils of recent adaptations.

Introduction

A legal maelstrom is developing over private enforcement litigation. Citizens have long been endowed with the authority to enforce regulatory laws by filing civil suits in court in contexts as diverse as employment discrimination, housing discrimination, antitrust, civil rights, labor and employment, healthcare, and others.1.See infra Section I.A. I occasionally use the term “citizen” to refer to private enforcers, in part because private enforcement suits are at times styled as “citizen suits,” particularly in the environmental context. See, e.g., Katherine A. Rouse, Note, Holding the EPA Accountable: Judicial Construction of Environmental Citizen Suit Provisions, 93 N.Y.U. L. Rev. 1271, 1275–84 (2018) (exploring citizen suit regimes). However, I am referring to citizenship as a practice of participation in political-legal enforcement, and I do not mean to draw the formal distinction delineating citizens and non-citizens under various U.S. legal regimes, particularly because some private enforcers need not be U.S. citizens under the law and, indeed, some private enforcement regimes protect non-citizens. See, e.g., Civil Rights Act of 1964, Pub. L. No. 88-352, tit. VII, § 703, 78 Stat. 241, 253–66 (codified as amended at 42 U.S.C. §§ 2000e–2000e-2) (banning employment discrimination on account of national origin).Show More While private enforcement has a long and complicated lineage, paradigmatic private enforcement suits involve members of the public enforcing regulatory statutes governing the marketplace and codifying civil rights commitments.2.See infra Section I.A; see also David L. Noll & Luke Norris, Federal Rules of Private Enforcement, 108 Cornell L. Rev. (forthcoming 2023) (manuscript at 2–3) (on file with the author) (noting private enforcement is a product of legislatures “creating private rights of action, modifying court procedures, and subsidizing litigation through attorney’s fee-shifts, damages enhancements, and other measures that make it attractive for private parties and the attorneys who represent them to shoulder the work of enforcing the law”).Show More But across the legal landscape, private enforcement suits are being adapted creatively today—provoking serious legal challenges and prompting heated debate.

Texas’s S.B. 8 is at the center of the maelstrom. The law, which permits people to bring actions against anyone who aids or abets the performance or inducement of an abortion after approximately six weeks of pregnancy, relies exclusively on private enforcement.3.S.B. 8, § 3, 87th Leg., Reg. Sess. (Tex. 2021) (codified at Tex. Health & Safety Code Ann. § 171.208 (West 2022)) (permitting “any person” to bring an action against anyone who “aids or abets the performance or inducement of an abortion”).Show More S.B. 8 is part of a new wave of private causes of action, including those that task members of the public with enforcing laws banning transgender people from using bathrooms or playing on sports teams that correspond with their gender identities.4.See, e.g., H.B. 1233, § 1(5)(a), 112th Gen. Assemb., Reg. Sess. (Tenn. 2021) (codified at Tenn. Code Ann. § 49-2-805 (2021)) (permitting any student, teacher, or employer to sue if they have to share a restroom with a transgender person); S.B. 1028, 2021 Leg., Reg. Sess. § 12 (Fla. 2021) (codified at Fla. Stat. § 1006.205 (2021)) (permitting students to sue if they are “deprived of an academic opportunity” by being required to play sports with a transgender person).Show More New laws passed and others proposed in several states give people the ability to sue school districts that teach critical race theory (“CRT”) or employers that train based on it, and one law gives people the authority to sue purveyors of restricted firearms.5.See, e.g., S.B. 1327, 2022 Leg., Reg. Sess. (Cal. 2022) (codified at Cal. Bus. & Prof. Code § 22949.60 (Deering 2022) and Cal. Civ. Proc. Code § 1021.11 (Deering 2022)) (authorizing private enforcement suits against anyone who manufactures, distributes, or sells restricted firearms); Teaganne Finn, DeSantis Pushes Bill Targeting Critical Race Theory in Schools, NBC News (Dec. 15, 2021), https://www.nbcnews.com/politics/polit‌ics-news/desantis-pushes-bill-targeting-critical-race-theory-schools-n1286049 [https://perma‌.cc/2XDZ-UHP3] (“Republican Florida Gov. Ron DeSantis is pushing a new bill that would allow parents to sue school districts if their children are taught critical race theory in classrooms, which mirrors how Texas’ abortion ban is enforced.”); Laura Meckler, Teachers Union Sues New Hampshire Over Law Barring Certain Race Lessons, Wash. Post (Dec. 13, 2021), https://www.washingtonpost.com/education/2021/12/13/new-hampshire-critical-race-theory-lawsuit/ [https://perma.cc/N884-TTHK] (describing law passed in New Hampshire regarding the teaching of topics around race and its private right of action). For an overview of all CRT bills proposed and passed, see Peter Green, Teacher Anti-CRT Bills Coast to Coast: A State by State Guide, Forbes (Feb. 16, 2022), https://www.forbes.com/sites/pete‌rgreene/2022/02/16/teacher-anti-crt-bills-coast-to-coast-a-state-by-state-guide/?sh=306100ec‌4ff6 [https://perma.cc/E5CZ-Y6BJ].Show More

Questions about the legality of these private enforcement schemes are already percolating through the courts. The U.S. Supreme Court recently weighed in on one aspect of S.B. 8.6.See Whole Woman’s Health v. Jackson, 142 S. Ct. 522, 529–30 (2021) (deciding whether pre-enforcement review of the statute’s constitutionality is permissible).Show More The bill lacks public enforcement mechanisms, in large part to stop pre-enforcement suits against government officials,7.See infra notes 50, 67–69 and accompanying text.Show More but a divided Supreme Court allowed pre-enforcement suits to be brought against state medical licensing officials who are tasked with enforcing the law.8.See Whole Woman’s Health, 142 S. Ct. at 535–37.Show More The law is also a troubling precedent—in large part because its six-week ban on abortions ran afoul of controlling Supreme Court precedent when it was passed—although that precedent has since been overturned.9.See infra note 70 and accompanying text; Dobbs v. Jackson Women’s Health Org., 142 S. Ct. 2228, 2284 (2022).Show More

The controversy over these laws, however, extends further. Commentators argue that many of these recent adaptations, by having members of the public enforce laws against one another upon merely witnessing their conduct, amount to a form of legal vigilantism, suppress existing legal rights, entrench marginalization, and pose due process concerns in their design.10 10.See Jon D. Michaels & David L. Noll, Vigilante Federalism, Cornell L. Rev. (forthcoming 2023) (manuscript at 3–4, 18–22), https://papers.ssrn.com/sol3/papers.cfm?abstra​ct_id=​3915944 [https://perma.cc/J8ZY-V26M] [hereinafter Michaels & Noll, Vigilante Federalism] (advancing all of these arguments); see also Aziz Z. Huq, The Private Suppression of Constitutional Rights, 101 Tex. L. Rev. (forthcoming 2023) (manuscript at 51–54), https://ssrn.com/abstract=4072800 [https://perma.cc/CD2F-HQW8] (connecting S.B. 8 to the Fugitive Slave Act and a larger history of private suppression of constitutional rights that includes labor suppression and racially restrictive covenants); Jon Michaels & David Noll, We Are Becoming a Nation of Vigilantes, N.Y. Times (Sept. 4, 2021), https://www.nytimes.c​om/2021/09/04/opinion/texas-abortion-law.html [https://perma.cc/6UPG-PLB9] (“In the seemingly endless battle to deny disfavored groups equal citizenship, Republican lawmakers around the country have . . . inverted private enforcement laws . . . to enable individuals to suppress the rights of their neighbors, classmates and colleagues.”); Laurence H. Tribe & Stephen I. Vladeck, Texas Tries to Upend the Legal System With Its Abortion Law, N.Y. Times, (July 19, 2021), https://www.nytimes.com/2021/07/19/opinion/texas-abortion-law-reward.html/ [https://perma.cc/G9EF-CZN4] (arguing that S.B. 8 is designed to evade federal review). A federal district court judge overseeing litigation surrounding S.B. 8 found that it violates constitutional due process. See Whole Woman’s Health, 141 S. Ct. at 2494.Show More They also argue that these laws are different in kind from most traditional private enforcement suits, which are characterized by enforcers who suffer direct harm—say, consumer fraud or unlawful termination—enforcing regulatory laws governing those harms.11 11.See Michaels & Noll, Vigilante Federalism, supra note 10, at 28–31.Show More

All of these criticisms have merit. But the debate over which kinds of private enforcement are justified and valuable suffers from a deeper problem: our theory of the role of private enforcement in democracy is underdeveloped.

This Article claims that to better analyze private enforcement’s various forms, we need to first understand the proper role of citizen enforcement in democracy. Fundamentally, the debate over private enforcement is one over whether and when members of the public should participate in enforcing regulatory laws. For some thinkers, tasking members of the public, their lawyers, and courts with regulatory enforcement authority is problematic.12 12.See infra Section II.A.Show More They argue that public enforcers and bureaucrats are more accountable regulatory agents.13 13.See infra Section II.A.Show More Some even argue that private enforcement suits pose constitutional concerns or fit uncomfortably under Article II of the Constitution, which vests law-enforcement power in the executive branch.14 14.See, e.g., Cass R. Sunstein, Article II Revisionism, 92 Mich. L. Rev. 131, 131 (1993) (overviewing and critiquing the argument that “certain grants of standing—to citizens, taxpayers, or others without an individuated injury—would compromise the vesting of executive power in the President and the grant of power to the President, rather than to courts or to citizens, to ‘take Care that the Laws be faithfully executed’”).Show More For others, private enforcement is justified largely for its structural, gap-filling role in regulatory enforcement: private enforcers and their lawyers bring cases that public enforcers might not have the information, resources, or political will to bring.15 15.See infra Section II.A.Show More On this view, private enforcement is valuable in a complementary sense. But the democratic theory that maintains that public enforcers are best vested with authority to implement the law survives largely unscathed.

Lost from view in this dialogue is a deeper theoretical account of popular participation in regulatory governance that both can generally justify private enforcement as a democratic practice and enable us to better sort through its variations. Scholars have noted in passing that private enforcement facilitates popular participation in self-government, but have not developed the rationales explaining why this is so.16 16.See Stephen B. Burbank, Sean Farhang & Herbert Kritzer, Private Enforcement, 17 Lewis & Clark L. Rev. 637, 666 (2013) (arguing that “private enforcement regimes contribute to participatory and democratic self-government”).Show More But there are rich resources in U.S. legal and intellectual history for developing a better account of popular participation in regulatory governance that can reveal both the promise and the limits of private enforcement.

At the turn of the twentieth century, as questions roiled over whether members of the public should participate in regulatory governance or whether the domain should be left to public officials and experts alone, thinkers developed a participatory democracy account of regulatory governance. At the time, they elaborated three core justifications for why and when we might center members of the public in regulatory enforcement. They asserted that popular participation in regulatory enforcement is democratically valuable because it can (1) even out structural power imbalances that threaten to undermine democracy, (2) enable members of the public to bring the expertise of their direct, affected experience to dynamic regulatory contexts, and (3) help to facilitate democratic deliberation over regulatory norms. These justifications remain relevant today and aid in navigating the evolving terrain of private enforcement regimes.

Traditional private enforcement suits exhibit democratic promise under each justification. First, they often involve dispersed members of the public—at times those who have faced historical and enduring forms of marginalization—bringing suits against often powerful firms or government actors. In this way, citizens as workers, consumers, patients, and in other roles can exercise countervailing power by bringing suits in court. Second, in these suits, private enforcers tend to bring their direct experiences and personally felt harms to courts, leveraging the expertise of experience. And, they do so in contexts where the changing behavior of regulatory subjects raises complicated interpretive questions. In these contexts, members of the public directly experience evolving forms of economic and social behavior and are well-positioned to measure them against regulatory norms and to engage with state institutions to commence processes of regulatory interpretation. And finally, by doing so, private enforcers’ suits can deepen the well of deliberation between members of the public, courts, agencies, and legislators over the meaning and application of regulatory norms.

In contrast, recent adaptations of private enforcement tend to exhibit less democratic promise. First, they often either do not respond to or threaten to exacerbate existing power imbalances. The suits tend to involve citizens enforcing against fellow citizens, hardly David-versus-Goliath-type contests. And the suits at times exacerbate power disparities. The people who are affected the most by enforcement are often those who have faced historical and enduring forms of marginalization, including Black, pregnant, and transgender people. Second, the suits involve enforcers bringing less direct, affected experience to less dynamic regulatory environments. Private enforcers in these regimes tend not to have the kinds of experiences and personally felt harms that enrich regulatory deliberation. They are more voyeurs than victims. And the kinds of suits they bring involve fewer questions of regulatory interpretation and application. In contrast to thorny questions over, say, whether complicated workplace dynamics trigger employment laws or whether certain parallel business conduct triggers antitrust laws, the laws involve simpler questions, like whether a transgender person was in a bathroom that corresponded with their gender identity rather than their sex assigned at birth. Indeed, the largest interpretive questions about these laws may be about whether or not they are constitutional in the first place—whether they violate the rights of transgender students, Black students, and pregnant people—rather than issues of complex, ongoing implementation. Finally, these suits have the potential to undermine democratic deliberation in a variety of ways—including by posing citizen against citizen and fraying the social fabric and by further subordinating people who have faced historical and enduring forms of oppression.

This Article thus mines the deeper democratic foundations of private enforcement litigation to make sense of, and sort among, its variations. Its core claim is that to navigate the brave new world of private enforcement, it is useful to theorize more richly about what democratic regulatory governance entails and who should be its agents. And its core contribution is to develop a participatory democracy account within the context of private enforcement that enables us to analyze its variations. In doing so, it builds on both democratic theories of adjudication and regulatory enforcement in other contexts, particularly in agencies.17 17.See generally, e.g., Blake Emerson, The Public’s Law: Origins and Architecture of Progressive Democracy 84–95 (2019) (drawing on Progressive Era thought to develop a democratic vision of administrative law and governance); Jerry L. Mashaw, Reasoned Administration and Democratic Legitimacy: How Administrative Law Supports Democratic Government (2018) (articulating a vision of administrative governance as reasoned administration and showing how administrative law contributes to democratic legitimacy); K. Sabeel Rahman, Democracy Against Domination (2016) (drawing on Progressive Era democratic theory to develop a progressive vision of regulatory governance).Show More One caveat is that while this Article provides a general theoretical account of the promises of traditional private enforcement suits, at the more granular level—in particular, regulatory regimes and enforcement settings—legislators, courts, and civil rule-makers have to make context-dependent decisions about facilitating, calibrating, and at times limiting private enforcement.18 18.See infra note 167 and accompanying text.Show More Such decisions involve a complex constellation of considerations that will vary across contexts. Similarly, particular ways of organizing litigation—including those that stymy public participation—may also undermine private enforcement, and particular private enforcement actions may be less valuable because of redundancy or over-enforcement concerns and calibration issues. This Article, however, at the least can inform analyses about designing private enforcement regimes by augmenting and clarifying the set of general reasons for Congress to rely on private enforcement in traditional contexts and for courts and civil rule-makers to facilitate it.

While this Article supplies a framework for justifying traditional private enforcement suits and critiquing recent adaptations, it also suggests that dynamics in U.S. law and politics may portend a future where traditional suits wither and recent adaptations grow and flourish.19 19.See infra Part IV.Show More Traditional suits are threatened by arbitration’s increasing privatization of private regulatory law enforcement and Supreme Court procedural decisions making it more difficult for private enforcers to bring and maintain their suits.20 20.See infra Section IV.A.Show More At the same time, bills mimicking the recent adaptations are proliferating across state legislatures, increasing the prospects of a future where private enforcement turns away from traditional concerns with marketplace regulation and civil rights and towards issues of cultural grievance and contest.21 21.See infra Section IV.B.Show More This Article suggests that such a paradigm shift might be understood as being emblematic of a political strategy of plutocratic populism—defined by an effort to undermine worker- and consumer-protective regulatory law and enact deregulatory policies favoring the ultra-wealthy and powerful corporations while using cultural grievance to obscure those policies and win working-class support.22 22.See infra notes 225–27 and accompanying text.Show More

This Article proceeds in four Parts. Part I explores the characteristics of both traditional forms and recent adaptations of private enforcement. It also describes some of the emerging critiques of the recent private enforcement regimes. To make inroads in the debate over private enforcement’s variations, Part II takes a step back to consider the various democratic rationales for and against private enforcement. The Part then builds on this body of thought by developing a participatory democracy account of regulatory enforcement, laying out the rationales for it, and sketching out how it might apply to enforcement processes. Part III digs in further, applying the participatory democracy theory to both the traditional forms and newer adaptations of private enforcement. It argues that traditional private enforcement schemes are generally supported by the rationales elaborated in Part II, while the newer adaptations are generally not.

Part IV steps back further and explores how dynamics in our law and politics may mean that traditional private enforcement suits wither while recent adaptations bloom. And it suggests that legal challenges to these new laws and the enactment of copycat laws in Democrat-controlled states are unlikely to stem the tide and indeed will fit into the cultural grievance playbook. The only effective response to the paradigm shift away from traditional private enforcement, then, may perhaps be the most difficult to achieve: building an inclusive working-class populism that re-centers questions of democracy, equality, and economic distribution and calls for vibrant and robust democratic-regulatory governance.

  1. See infra Section I.A. I occasionally use the term “citizen” to refer to private enforcers, in part because private enforcement suits are at times styled as “citizen suits,” particularly in the environmental context. See, e.g., Katherine A. Rouse, Note, Holding the EPA Accountable: Judicial Construction of Environmental Citizen Suit Provisions, 93 N.Y.U. L. Rev. 1271, 1275–84 (2018) (exploring citizen suit regimes). However, I am referring to citizenship as a practice of participation in political-legal enforcement, and I do not mean to draw the formal distinction delineating citizens and non-citizens under various U.S. legal regimes, particularly because some private enforcers need not be U.S. citizens under the law and, indeed, some private enforcement regimes protect non-citizens. See, e.g., Civil Rights Act of 1964, Pub. L. No. 88-352, tit. VII, § 703, 78 Stat. 241, 253–66 (codified as amended at 42 U.S.C. §§ 2000e–2000e-2) (banning employment discrimination on account of national origin).
  2. See infra Section I.A; see also David L. Noll & Luke Norris, Federal Rules of Private Enforcement, 108 Cornell L. Rev. (forthcoming 2023) (manuscript at 2–3) (on file with the author) (noting private enforcement is a product of legislatures “creating private rights of action, modifying court procedures, and subsidizing litigation through attorney’s fee-shifts, damages enhancements, and other measures that make it attractive for private parties and the attorneys who represent them to shoulder the work of enforcing the law”).
  3. S.B. 8, § 3, 87th Leg., Reg. Sess. (Tex. 2021) (codified at Tex. Health & Safety Code Ann. § 171.208 (West 2022)) (permitting “any person” to bring an action against anyone who “aids or abets the performance or inducement of an abortion”).
  4. See, e.g., H.B. 1233, § 1(5)(a), 112th Gen. Assemb., Reg. Sess. (Tenn. 2021) (codified at Tenn. Code Ann. § 49-2-805 (2021)) (permitting any student, teacher, or employer to sue if they have to share a restroom with a transgender person); S.B. 1028, 2021 Leg., Reg. Sess. § 12 (Fla. 2021) (codified at Fla. Stat. § 1006.205 (2021)) (permitting students to sue if they are “deprived of an academic opportunity” by being required to play sports with a transgender person).
  5. See, e.g., S.B. 1327, 2022 Leg., Reg. Sess. (Cal. 2022) (codified at Cal. Bus. & Prof. Code § 22949.60 (Deering 2022) and Cal. Civ. Proc. Code § 1021.11 (Deering 2022)) (authorizing private enforcement suits against anyone who manufactures, distributes, or sells restricted firearms); Teaganne Finn, DeSantis Pushes Bill Targeting Critical Race Theory in Schools, NBC News (Dec. 15, 2021), https://www.nbcnews.com/politics/polit‌ics-news/desantis-pushes-bill-targeting-critical-race-theory-schools-n1286049 [https://perma‌.cc/2XDZ-UHP3] (“Republican Florida Gov. Ron DeSantis is pushing a new bill that would allow parents to sue school districts if their children are taught critical race theory in classrooms, which mirrors how Texas’ abortion ban is enforced.”); Laura Meckler, Teachers Union Sues New Hampshire Over Law Barring Certain Race Lessons, Wash. Post (Dec. 13, 2021), https://www.washingtonpost.com/education/2021/12/13/new-hampshire-critical-race-theory-lawsuit/ [https://perma.cc/N884-TTHK] (describing law passed in New Hampshire regarding the teaching of topics around race and its private right of action). For an overview of all CRT bills proposed and passed, see Peter Green, Teacher Anti-CRT Bills Coast to Coast: A State by State Guide, Forbes (Feb. 16, 2022), https://www.forbes.com/sites/pete‌rgreene/2022/02/16/teacher-anti-crt-bills-coast-to-coast-a-state-by-state-guide/?sh=306100ec‌4ff6 [https://perma.cc/E5CZ-Y6BJ].
  6. See Whole Woman’s Health v. Jackson, 142 S. Ct. 522, 529–30 (2021) (deciding whether pre-enforcement review of the statute’s constitutionality is permissible).
  7. See infra notes 50, 67–69 and accompanying text.
  8. See Whole Woman’s Health, 142 S. Ct. at 535–37.
  9.  See infra note 70 and accompanying text; Dobbs v. Jackson Women’s Health Org., 142 S. Ct. 2228, 2284 (2022).
  10. See Jon D. Michaels & David L. Noll, Vigilante Federalism, Cornell L. Rev. (forthcoming 2023) (manuscript at 3–4, 18–22), https://papers.ssrn.com/sol3/papers.cfm?abstra​ct_id=​3915944 [https://perma.cc/J8ZY-V26M] [hereinafter Michaels & Noll, Vigilante Federalism] (advancing all of these arguments); see also Aziz Z. Huq, The Private Suppression of Constitutional Rights, 101 Tex. L. Rev. (forthcoming 2023) (manuscript at 51–54), https://ssrn.com/abstract=4072800 [https://perma.cc/CD2F-HQW8] (connecting S.B. 8 to the Fugitive Slave Act and a larger history of private suppression of constitutional rights that includes labor suppression and racially restrictive covenants); Jon Michaels & David Noll, We Are Becoming a Nation of Vigilantes, N.Y. Times (Sept. 4, 2021), https://www.nytimes.c​om/2021/09/04/opinion/texas-abortion-law.html [https://perma.cc/6UPG-PLB9] (“In the seemingly endless battle to deny disfavored groups equal citizenship, Republican lawmakers around the country have . . . inverted private enforcement laws . . . to enable individuals to suppress the rights of their neighbors, classmates and colleagues.”); Laurence H. Tribe & Stephen I. Vladeck, Texas Tries to Upend the Legal System With Its Abortion Law, N.Y. Times, (July 19, 2021), https://www.nytimes.com/2021/07/19/opinion/texas-abortion-law-reward.html/ [https://perma.cc/G9EF-CZN4] (arguing that S.B. 8 is designed to evade federal review). A federal district court judge overseeing litigation surrounding S.B. 8 found that it violates constitutional due process. See Whole Woman’s Health, 141 S. Ct. at 2494.
  11. See Michaels & Noll, Vigilante Federalism, supra note 10, at 28–31.
  12. See infra Section II.A.
  13. See infra Section II.A.
  14.  See, e.g., Cass R. Sunstein, Article II Revisionism, 92 Mich. L. Rev. 131, 131 (1993) (overviewing and critiquing the argument that “certain grants of standing—to citizens, taxpayers, or others without an individuated injury—would compromise the vesting of executive power in the President and the grant of power to the President, rather than to courts or to citizens, to ‘take Care that the Laws be faithfully executed’”).
  15. See infra Section II.A.
  16. See Stephen B. Burbank, Sean Farhang & Herbert Kritzer, Private Enforcement, 17 Lewis & Clark L. Rev. 637, 666 (2013) (arguing that “private enforcement regimes contribute to participatory and democratic self-government”).
  17.  See generally, e.g., Blake Emerson, The Public’s Law: Origins and Architecture of Progressive Democracy 84–95 (2019) (drawing on Progressive Era thought to develop a democratic vision of administrative law and governance); Jerry L. Mashaw, Reasoned Administration and Democratic Legitimacy: How Administrative Law Supports Democratic Government (2018) (articulating a vision of administrative governance as reasoned administration and showing how administrative law contributes to democratic legitimacy); K. Sabeel Rahman, Democracy Against Domination (2016) (drawing on Progressive Era democratic theory to develop a progressive vision of regulatory governance).
  18. See infra note 167 and accompanying text.
  19. See infra Part IV.
  20. See infra Section IV.A.
  21. See infra Section IV.B.
  22. See infra notes 225–27 and accompanying text.