Early women’s rights advocates relied on formal citizenship status as a basis for demanding the substantive rights that full citizens enjoy—a broad spectrum of political, personal, and civil rights from suffrage to child custody to property ownership.  Out of the Seneca Falls convention in 1848 came the Declaration of Sentiments, a wish list that would serve as the blueprint for a century of women’s rights advocacy.  The civil and political rights emphasized by those early advocates were essential components of equal citizenship, a substantive concept popularized in the 1950s by British social theorist T.H. Marshall.  But Marshall also identified an important third dimension—social citizenship—which, in the United States, involves access to paid work and economic security.

Pregnancy, with physical effects that often, if only temporarily, impede a woman’s working capacity, is increasingly an obstacle to women’s equal social citizenship.  Conflicts between pregnancy and work escalated in number and degree as women expanded their labor force participation in many respects, including working more and longer while pregnant and holding hazardous and physically strenuous (but often well-paying) jobs traditionally reserved for men.

The Pregnancy Discrimination Act of 1978 (PDA) was part of a broad social movement designed to guarantee equal employment opportunities for women, but was specifically designed to dismantle a system in which states and employers freely, though inconsistently, excluded pregnant women from the workplace or restricted the conditions under which they could work based on false assumptions about their capacity.   Unquestionably, the PDA successfully opened workplace doors for pregnant women, invalidating these laws and policies and giving women a weapon against employment decisions motivated by harmful pregnancy bias.  But women’s equal participation in the workforce requires more than just open doors.

The plight of pregnant workers today rests not primarily in false assumptions about their incapacity but in the failure of current law to account for the physical, medical, and social realities of pregnancy. Pregnancy discrimination law provides absolute protection for women only if they retain full work capacity during the period of pregnancy and childbirth.  In cases of partial incapacity, it provides only a comparative right to accommodations that can be limited in nature and difficult to enforce.

My Article argues that equal citizenship requires not only legal protection from unjustified exclusion from the workforce, but also protection for a pregnant woman’s right to work despite the potential temporary physical limitations of pregnancy.  This protection, in turn, means that employers must be required to provide reasonable workplace accommodations to counter the physical effects of pregnancy.

I.
The Realities Faced by Pregnant Working Women

Perhaps the most important fact about pregnant working women today is the dramatic increase in their numbers.  A general influx of women into the workforce beginning in the 1950s (so substantial that they are now poised to outnumber male workers) set the stage for the eventual increase in labor force participation by pregnant women and mothers.  This, combined with a change in attitudes about the proper role of women, fostered greater workforce participation by pregnant women and mothers.  Today, a majority of pregnant women work outside the home, and the vast majority of working women will become pregnant at some point during their working lives.  And women who do work while pregnant stay longer and return sooner than women from earlier eras.

Despite their numbers, however, pregnant women continue to face bias in the workplace. Pregnancy discrimination claims have surged in the past decade, and major companies have found themselves on the receiving end of high-profile lawsuits.  Recent cases show the persistence of stereotyped decision making about pregnant workers, a finding supported by social science evidence.  However, pregnant women may be harmed more by the law’s commitment to pregnancy-blindness than by these residual instances of bias.

There is no inherent conflict between pregnancy and paid work. The workplace has long been plagued by false assumptions about the pregnant woman’s ability to work, but with little attention to relevant scientific data or the advice of individual doctors.  The first science-based guidelines on pregnancy and work, formulated in the 1970s and 1980s, concluded that a woman with an uncomplicated pregnancy can normally work until she gives birth and safely resume work several weeks later.  Since those initial guidelines were published, researchers have undertaken to study further the concrete effects of work on maternal and fetal health.  Despite advances in scientific research, there is still much more to be learned about the effects of work on pregnancy.  We know enough, however, to be concerned about a legal framework that fails to account for the physical effects of pregnancy.

Conflicts between pregnancy and work run both ways—pregnancy can interfere with job performance and job performance can interfere with healthy pregnancy.  These conflicts stem from the inevitable physical changes that accompany a woman’s pregnancy.  Many pregnant women will have difficulty, at various points during pregnancy, performing tasks like heavy lifting, prolonged standing, or rapid movement or complying with inflexible policies about start time, bathroom breaks, or eating on the job.  At the same time, women may encounter hazardous conditions at work even when their own capacity is not impaired.  Pregnant women face three types of potential danger at work: hazardous environmental conditions (contagions, chemicals, etc.), contraindicated physical movements (heavy lifting, for example), and adverse working conditions (night shift work, for example).

II.
Women’s Equal Citizenship

Pregnancy discrimination law, like most contemporary women’s rights issues, has developed under the framework of equality.  The equality model has been enormously helpful in breaking down barriers to the workplace, among other institutions.  But “equality” is hard to define and thus hard to measure, and disagreements over its proper definition have led to significant shortcomings in legal protection for pregnant workers.

This Article thus turns to full or equal “citizenship” as a standard by which to evaluate pregnancy discrimination law.  “Citizenship,” in the words of T.H. Marshall, “is a status bestowed on those who are full members of a community.  All who possess the status are equal with respect to the rights and duties with which the status is endowed.”¹ A “second-class citizen” is someone who is deprived of some essential component of citizenship, despite having an equal formal status.  “Citizenship,” though a contested concept, provides a substantive framework to measure women’s progress towards equality generally, as well as to critique current law’s treatment of pregnant women at work.

The citizenship framework has been criticized for its exclusionary effects, as well as for its focus on rights without an attendant focus on obligations.  This Article acknowledges those criticisms, but defends “equal citizenship” as a useful tool with a long and venerable history in the women’s rights movement.  The exclusionary effects can be addressed both through form—by replacing “citizenship” with terms like “standing” or “belonging,” as many scholars have done—and substance—by committing to the equal “citizenship” of all residents regardless of formal citizenship status.

Despite concerns about its exclusionary effects, the concept of equal citizenship continues to resonate with voters, advocates, legislatures, and judges.  Justice Ruth Bader Ginsburg invoked it in her opinion in United States v. Virginia,² which held that VMI’s all-male admissions policy was unconstitutional: “neither federal nor state government acts compatibly with equal protection when a law or official policy denies to women, simply because they are women, full citizenship stature—equal opportunity to aspire, achieve, participate in and contribute to society based on their individual talents and capacities.”³ It is this conception of equal citizenship that fuels this Article’s evaluation of current pregnancy discrimination law.

Work is an important component of equal citizenship, and the central feature of so-called “social citizenship.”  Work facilitates political participation, but also has tangible benefits for the individual, including, importantly, the potential for economic security. Women’s quest for social citizenship began in earnest in the 1960s, when advocates targeted a wide range of exclusionary policies and practices that hampered women’s employment opportunities.  Key legislative successes like the Equal Pay Act, Title VII, and Title IX, and significant litigation victories establishing a broad scope for these laws, were dovetailed by the Supreme Court’s embrace of a constitutional right of sex equality.  These developments were fueled by a stark change in social attitudes about women’s proper place and gave rise to a dramatic opening of workplace doors to women.

Despite the intense (and often successful) efforts feminists have deployed to increase women’s access to the workplace, it would be misleading to suggest that there is no disagreement among them about the importance of paid work or its centrality to social citizenship.  While many academics and popular press authors have urged women to embrace paid work as a pathway to independence, others have cautioned that the tendency to valorize work narrowly reflects the perspective of white or upper/middle class women and that the emphasis on work neglects the disproportionate amount of family and care work performed by women.

Regardless of whether one thinks we should push for equal valuation of unpaid work, equal access to meaningful paid work remains an essential, minimum component of equal citizenship.  Yet pregnancy presents a challenge: it often renders women temporarily less capable of performing their jobs, but not necessarily interested in converting their efforts to unpaid labor during or after pregnancy, even if society equally valued that work.

III.
Pregnancy Discrimination Law: From Exclusion to Access

Legal protection against pregnancy discrimination at work was a 1970s invention that brought about a stark turnabout in the treatment of pregnant working women.  An era of exclusion gave way to an era of access, as a legal regime that once permitted employers to bar pregnant women from the workplace with impunity was replaced with one that mandated pregnancy-blindness.

Traditionally women worked at the whim of employers, many of whom excluded pregnant or fertile women.  In 1908, the Supreme Court gave its imprimatur to exclusionary policies designed to protect women’s reproductive function in Muller v. Oregon,⁴ an opinion that led to decades of state protectionist legislation and exclusionary employer policies.  Even after Title VII was adopted, and heightened scrutiny for sex-based classifications was established, the Supreme Court twice gave its approval to laws and policies that discriminated against pregnant women.⁵

Federal pregnancy discrimination law comes from three sources.  First, despite ruling against an equality-based right for pregnant workers, the Supreme Court granted a limited due process right against presumptions of incapacity due to pregnancy.  Second, Congress adopted the PDA in 1978, which, in a first clause, adds pregnancy to the definition of prohibited sex discrimination and, in a second clause, requires that employers treat employees with pregnancy-based disability the same as those “not so affected, but similar in their ability or inability to work.”  Finally, Congress adopted the Family and Medical Leave Act of 1993 (FMLA), which grants a gender-neutral right to limited unpaid leave for illness or family care, which can be used, as needed, for disabilities associated with pregnancy and childbirth.

Feminists split over the proper interpretation of the second clause of the PDA.  The “equal treatment” feminists urged formal equality—pregnant women should receive only what other temporarily disabled workers receive—in order to promote better conditions for all workers and to avoid promoting harmful gender stereotypes.   An opposing coalition, in contrast, urged a substantive equality model, advocating for accommodation of pregnancy and childbirth when necessary to ensure equal outcomes for men and women in workplaces, whether other forms of temporary disability were accommodated or not.  The latter view won out, as the Supreme Court interpreted the second clause, in California Federal Savings & Loan Ass’n v. Guerra,⁶ as a floor, rather than a ceiling, on the benefits that could be made available to pregnant workers.

This ruling, in effect, leaves pregnant workers at the whim of their employers in many cases.  If they provide leave, accommodations, or benefits to temporarily disabled workers generally, they must also provide them to pregnant workers.  Employers can favor the needs of pregnant workers over those of other temporarily disabled workers.  But, if employers are stingy across the board, pregnant workers have little to support a demand for better treatment regardless of necessity.  A “no leave” policy, for example, could be upheld, subject only to the minimal protections of disparate impact law, even if it effectively means that all pregnant employees lose their jobs when it comes time to give birth.

Through these various legal components, pregnant workers have a right to an individualized assessment of their capacity (as opposed to the traditional stereotyped assessments that presumed them incapable by the mere fact of pregnancy).  They also have a right to work if fully capable and their “capacity” cannot be defined by potential risk to fetal health.  This is, in effect, a right of pregnancy blindness—employers must look past the pregnancy and treat them solely based on what they can or cannot do.  When fully incapacitated by pregnancy or childbirth, employees may have the right to leave—a comparative right to leave under the PDA and an absolute right, if eligible, under the FMLA.

IV.
Workplace Accommodations and the Failure of Social Citizenship

Together, these constitutional and statutory developments spelled the end of a number of traditional policies, practices, and stereotypes that had kept pregnant women from entering the workforce or continuing in their jobs during or after pregnancy.  The pregnancy discrimination framework, however, is as notable for its gaps as its coverage.  When only partially incapacitated by pregnancy, a worker’s rights are much more tenuous, and the legal regime often produces unsatisfactory results.  The Americans with Disabilities Act (ADA) generally does not apply to disability arising from normal pregnancy or childbirth.  Likewise, the Due Process Clause, while it has been read to prohibit pregnancy-based stereotyping, does not support any right to workplace accommodations for pregnant workers.  The PDA does not provide pregnant employees with the absolute right to reasonable or necessary accommodations.  An employer cannot deny accommodations because of pregnancy, but nor must it make even minor accommodations, even if the consequence is that the pregnant woman must leave her job.

The pregnant woman’s right to workplace accommodations is comparative, based on the treatment of other temporarily disabled workers.  This right, however, has proven quite limited in practice.  The search for a comparator can be elusive.  Recent cases challenging “light-duty” policies reveal another limit on the comparative right of accommodation.  Many employers reserve light-duty assignments (for example, desk duty for a police officer) for employees injured on the job.  All but one court has upheld such policies, even though this ensures that pregnant workers are always excluded.

In theory, disparate impact law should compensate for some of the shortcomings of the PDA’s comparative right of accommodation by invalidating some of the harsh employment policies that make it difficult for women to work through pregnancy.  But, again, in practice, it has not proven helpful.  Although courts acknowledge the existence of disparate impact liability, many refuse to apply it in its true form to pregnancy cases.  They reject its use to the extent it might result in a pregnant worker being exempted from a general workplace policy or gaining access to an accommodation not otherwise available.  Even when courts are willing to consider disparate impact claims in true form, plaintiffs in pregnancy cases almost always lose because they lack sufficient statistical evidence or are unable to identify an employment “practice” that produced the impact.

The limits on the comparative right of accommodation and disparate impact protection mean, in effect, that pregnant women in many cases do not have the right to continue working if pregnancy has even minimally impaired their capacity.  For those without available leave, the failure to provide reasonable accommodations is tantamount to termination.  Even for those with leave, pregnancy can bring dire economic consequences (especially if the leave is unpaid) and lost opportunities for advancement.  The lack of accommodation means that women will continue to lose ground in the occupations in which they need to gain it most—those traditionally dominated by men.  Studies show that women are less likely to continue working through pregnancy when they hold jobs that require physical exertion.  Moreover, because pregnancy typically comes early in women’s careers, the repercussions of lost training, wages, seniority, or opportunities for advancement can be felt for decades. Pregnancy simply exacerbates the tendency of predesigned and inflexible workplaces and jobs to exclude women as they seek to integrate across the occupational spectrum.

These scenarios bring us back to the initial question posed—whether the pregnancy discrimination framework precludes women from attaining equal social citizenship.  This Article argues that accommodation is the link between pregnant working women and equal social citizenship.  The failure of current law to acknowledge a pregnant woman’s right to work despite temporary, partial impairments or risks systematically undermines the ability of women to attain workplace equality.  It shortcuts the careers of individual women, exacerbates the glass ceiling many women already face, and, perhaps even worse, reinforces a long history of occupational segregation.  This, in turn, is a failure of equal social citizenship because it renders women less able than men to capitalize on their innate talents and capacities because of a unique biological function.  It breathes continued life into a pattern, noted by Justice Ginsburg in her recent dissent in AT&T v. Hulteen, that “[c]ertain attitudes about pregnancy and childbirth, throughout human history, have sustained pervasive, often law-sanctioned, restrictions on a woman’s place among paid workers and active citizens.” ⁷

Accommodation mandates come with risks—resentment, cost, and a deterrent to hiring women, to name just a few.   However, we can learn from mandates in other contexts.  The ADA also provides a natural model for providing workplace accommodations, although judicial interpretations have undermined its intended effects.   Some states have taken a more targeted approach, imposing narrow, but important, pregnancy accommodation requirements on employers.  These mandates demonstrate that we can craft an accommodation right that serves the needs of pregnant workers while minimizing adverse consequences.

Conclusion

The story of pregnant women and work in the United States is an unfinished one.  The current pregnancy discrimination framework has been tremendously important in opening up the American workplace to women, most of whom will both work and become pregnant at some point.  But the same emphasis on individual capacity that was crucial to dismantling the long-held stereotypes about the limitations and incapacities of pregnant women now serves as a stumbling block to future progress towards workplace equality.  The lack of a basic right to reasonable accommodation of pregnancy-related disability overlooks the real physical effects of pregnancy and childbirth on women and their employment opportunities.  Doors have been opened, but not enough has been done to ensure pregnant women can make full use of their innate talents and capacities once inside.  A genuine commitment to equal social citizenship can be carried out only by a legal framework that accounts for both the capacity and the potential incapacity of pregnant women.

Acknowledgments:

Copyright © 2010 Georgetown University Law Center.

Joanna L. Grossman is Professor and John DeWitt Gregory Research Scholar at Hofstra University School of Law.

This posting—and the Note from which it is derived—focuses on litigation by the Christian Legal Society (CLS), in which the CLS adopts rights rhetoric. In the cases I examine, CLS seeks exemptions for its student groups from the nondiscrimination policies of various public universities. The litigation arises from the fact that CLS chapters prohibit any student who engages in homosexual conduct or believes that homosexual conduct is not sinful from being an officer or voting member. As a result of this policy, CLS chapters have come into conflict with school administrations that forbid their student groups from discriminating on the basis of sexual orientation and which argue that CLS violates those nondiscrimination policies.

CLS argues that if its membership selection process violates universities’ nondiscrimination policies, it has a constitutional right to an exemption from such policies to the extent that they require nondiscrimination based on sexual orientation. Of the four cases considered in this posting, two of them—the suits against Arizona State University and The Ohio State University—settled before a court decision was rendered. CLS litigated a third case in the Seventh Circuit, successfully obtaining a preliminary injunction against Southern Illinois University School of Law (SIU Law). The parties subsequently settled, with SIU Law acquiescing to CLS’s membership and officer requirements. The fourth case, in which CLS sued Hastings College of the Law, went to the Ninth Circuit, where CLS ultimately was unsuccessful. The United States Supreme Court granted cert in this fourth case, Christian Legal Society v. Martinez, on December 7, 2009.

Because it adopts rights rhetoric in its litigation strategy, rhetoric commonly adopted by the gay rights movement, CLS creates a clash between its religious rights and homosexual students’ rights—a rights clash that inevitably leads to a zero-sum game. The legal system is hard-pressed to resolve the religion-homosexuality rights clash given this zero-sum game.

Despite these pitfalls, it remains important for rights clashes to be resolved institutionally, but this requires a change in our perspective on how legal institutions can properly handle such rights clashes. Instead of expecting an ideal solution to a rights clash in each act of a legal institution—such as a judicial decision or a legislative enactment—we should view each act as an imperfect moment in a political-judicial dialogue winding its way toward a principled resolution. I evaluate this perspective by examining two case studies of institutional dialogue in attempts to resolve the religion-homosexuality rights clash.  Although this perspective does not address all of the complications that rights clashes introduce, it does help temper expectations of what can be achieved from our current legal system while still maintaining hope for a proper result in the long term.

 
I.
The Use of Rights Rhetoric in the Christian Legal Society’s Litigation Strategy

Rights arguments, which involve universalizing the interests of an identity group, seem binding and dispositive in American legal disputes because arguments that “appeal to shared and uncontested understandings of the Constitution” and that are framed in “the language of a common tradition” are most effective in constitutional cases.¹

In arguing for exemptions from universities’ nondiscrimination policies, CLS adopts the rhetoric of rights, which encompasses related arguments based in identity and discrimination. It characterizes the lawsuits as civil rights cases and has argued that the belief that homosexuality is a sin is so integral to CLS’s identity that the ability to exclude active homosexuals and those who believe homosexuality is not a sin is key to its very existence. CLS argues that the universities discriminate against it as an identity group.

Of course, rights rhetoric commonly has formed the basis of the litigation strategy of the gay rights movement, CLS’s indirect adversary in this litigation. Indeed, in their briefs defending the application of the universities’ nondiscrimination policies to CLS, groups like Hastings Outlaw and the American Civil Liberties Union invoke similar discrimination and identity rhetoric. As a result, the language of rights is on both sides of this litigation.

 
II.
Rights Clash and the Zero-Sum Game

When rights clash—that is, when both sides of a dispute adopt rights rhetoric—reasonable people may disagree over how that clash should be resolved. There is significant disagreement among scholars regarding the proper outcome to the religion-homosexuality rights clash. The inevitable win-loss experienced by the two sides of the clash can be understood as a zero-sum game: the beliefs of the two sides are at such odds that their interests in the outcome are irreconcilable. The question comes down to whether gay rights should receive the full protection of nondiscrimination policies or whether religion should be singled out and granted exemptions—the two extremes of the zero-sum game.

Some scholars argue that religion should not receive special treatment; rather, gay rights, like other civil rights, outweigh religious objections. One iteration of this argument is that a “baseline of nondiscrimination” is necessary to “[e]nsur[e] that LGBT people can live honestly and safely in all aspects of their social lives” and “that members of the public who have a morally neutral characteristic are able to live without fear or vulnerability of discrimination based on that characteristic.”² Beyond this normative argument, another contention is that the government should not treat gay rights differently from civil rights based on race. Civil rights based on race generally prevail over religious rights, while the relationship between religious rights and rights based on sexual orientation (and gender) is less settled.

Other scholars argue that the weighing of the interests comes out on the other side: given the existence of a rights clash, there is good reason to favor religion and grant it exemptions from laws of general applicability. Professor Andrew Koppelman has argued that if the law must pick sides, religion is a fair and proper side to choose because it is a “distinctive human good.”³ Another argument is that giving religion special constitutional treatment is in keeping with the goals of the First Amendment: the Religion Clauses are intended to minimize government’s disturbance of private observance of religion, and religious exemptions from generally applicable laws are acceptable special treatment of religion because they help to advance this constitutional goal.⁴

 
III.
Implications: The (In)Ability of the Legal System To Resolve the CLS Rights Clash In a Principled Way

Given that reasonable people may disagree over how a rights clash should be resolved, does that mean that when both parties to a dispute invoke rights language, the outcome becomes indeterminate—contrary to the commonly-held belief that rights rhetoric is determinate? Can rights clashes be resolved in a principled way in the courts or legislatures? Must we look to extra-institutional approaches for a principled result? Here, I evaluate these options.

 
A.     The Courts: Unpredictable Umpires or Redeemable Referees?

Critical Legal Studies scholars have argued that rights rhetoric leads to indeterminacy in the courts. By “indeterminacy” these scholars mean lacking a single, objective, predictable answer to a legal problem. In other words, rights arguments, like policy and normative arguments, are susceptible to strategy and value judgments.

They contend that indeterminacy is especially salient when there is a rights clash because it inevitably leads to balancing of the conflicting interests. And once a court begins balancing competing claims of rights, “it is implausible that it is the rights themselves, rather than the ‘subjective’ or ‘political’ commitments of the judges, that are deciding the outcome.”⁵

Thus to the extent that we value courts’ ability to resolve the religion-homosexuality rights clash in a principled and unbiased way—a desire that is uniquely felt when the two parties going head-to-head are both minority groups—the question remains whether there is a better option for resolving the CLS disputes.

 
B.     The Legislatures: Enlightened Statesmen?

Some scholars contend that legislatures are the better branch in which to resolve problems like the religion-homosexuality rights clash. Central to this argument is the notion that “politics is the arena of compromise,” a characteristic that would theoretically solve the problem of having to pick a winner in the zero-sum game.⁶

The problem that remains is that the zero-sum game is inevitable where the government is involved. Changing political views on the subject would lead to the greatest indeterminacy of all. The Founders, of course, were particularly concerned by the strength of representative legislatures and their potential for tyrannical majorities. Thus, there is reason to doubt whether legislatures alone can resolve rights clashes in a principled way.

 
C.     Extra-Institutional Approaches

1.   Private Dispute Resolution: Room for Compromise or Compromised Results?

Recognizing some of the problems of judicial and legislative resolutions of rights clashes, some scholars have suggested that the best way to avoid the zero-sum game is to resolve disputes privately. Because the experience may be less polarizing, the parties have a greater chance of encouraging normative growth and coming to an understanding of their competing interests.

Private negotiations and settlements may, theoretically, avoid the zero-sum game. However, this solution is not a cure-all because it leaves systemic problems with legal institutions in place. Settlements are inextricably linked to litigation because threats of litigation must be sincere in order to motivate settlement negotiations; thus, there is a potential that any given rights clash will go to court. But because settlements do not make law that is binding on courts or parties other than those parties privy to them, they do not help advance principled results in legal institutions for future litigation (or for legislative decisionmaking). Thus settlements are not as effective as legislation and judicial decisions in promoting progress in constitutional understanding—as evidenced by the coexistence of a circuit split with two settled cases in the CLS litigation.

A related problem with negotiation was previously mentioned in the context of legislation and bears repeating: even when the government does not “get involved” in a rights clash, it is taking a side. Governmental inaction simply creates a default position.

2.   Ballot Initiatives: Trust the Result to the Will of the People?

Ballot initiatives are particularly problematic for resolving rights clashes. Perhaps of most concern, ballot initiatives lack the greatest advantage of private dispute resolution: compromise. And even as they depart in this respect from the legislative process, which does offer some level of compromise, ballot initiatives share a flaw with representative lawmaking: tyranny of the majority. When both parties in rights clashes claim to be minority groups, this drawback causes one to wonder if there is not a better solution.

 
IV.
A Different Perspective: Case Studies in Political-Judicial Dialogue

The flawed nature of each judicial decision and each piece of legislation that attempts to resolve this rights clash necessitates a new perspective on what one can expect from such decisions and legislative enactments. One can view each flawed case and piece of legislation as a part of an ongoing political-judicial dialogue that is working toward a principled and acceptable resolution. Through institutional interaction, the law evolves to take into account the rights of religious groups as well as homosexual citizens.

In Canada and Vermont, the debates over gay marriage were framed by religion-homosexuality rights clashes. Religious scholars and groups opposed the legalization of same-sex marriage, fearing that it impinged on their religious rights. The legal systems in both jurisdictions have engaged in institutional dialogues to resolve this clash.

In Canada, the institutional dialogue was set off by a Supreme Court case that invalidated a law limiting spousal support rights to heterosexual relationships. A firestorm of legislative response followed, in which federal and provincial legislatures revised laws to extend protections enjoyed by opposite-sex couples to same-sex couples. Several years later, two Canadian appeals courts held that same-sex couples were entitled to marry. The Canadian government decided not to appeal either case, but rather to draft legislation that would recognize their holdings—a prime example of political-judicial dialogue. In an advisory opinion requested by Parliament, the Supreme Court of Canada held that this legalization of same-sex marriage was permissible and that under the Canadian Charter of Rights and Freedoms religious groups would be protected from performing marriages that violated their religious beliefs.

Vermont, like Canada, has adopted a same-sex marriage law that explicitly recognizes the rights of religious groups, and the road to its enactment was paved by institutional dialogue. In Baker v. Vermont, the Supreme Court of Vermont held that same-sex couples had a constitutional right to “the same benefits and protections afforded by Vermont law to married opposite-sex couples.”⁷ The Baker court set up a political-judicial dialogue by declining to determine how that right should be recognized. Vermont’s legislature responded with “civil union” legislation. This legislation was met with varying responses at the polls. In 2009, the legislature enacted, over the governor’s veto, legislation that recognizes gay couples’ right to marry and protects religious organizations from being “required to provide services, accommodations, advantages, facilities, goods, or privileges to an individual if the request . . . is related to the solemnization of a marriage or celebration of a marriage.”⁸

Whether the Canadian and Vermont dialogues have achieved an ideal resolution of the religion-homosexuality rights clash, however, is unclear. The debates continue, with some arguing that the religious exemptions are insufficient. Though the dialogues may be ongoing, they have provided the compromise of private dispute resolution while advancing—rather than ignoring—legislatures’ and courts’ resolutions of the religion-homosexuality rights clash.

 
Conclusion

Although institutional dialogue certainly has its own pitfalls, it might be the best means by which Americans can expect a proper resolution to rights clashes for several reasons. It allows for compromise, the benefit of private dispute resolution. Yet it avoids the problem of private resolution, which is that the results rely on legal institutions without resolving their challenges. That problem is eliminated because political-judicial dialogue is rooted in legal institutions; it checks and balances their individual weaknesses. Thus it preserves the possibility of a principled result, at least in the long-term.

Acknowledgments:

Copyright © 2010 Georgetown Law Journal.

Laura K. Klein is a 2010 J.D. Candidate at Georgetown University Law School.

This Legal Workshop Editorial is based on the following Student Note: Laura K. Klein, Rights Clash: How Conflicts Between Gay Rights and Religious Freedoms Challenge the Legal System, 98 GEO. L.J. (forthcoming 2010).

On first learning of the bill during the 110th Congress, I assumed the Democrats advancing the bill would need their new majority to overcome at least some amount of Republican skepticism. What actually transpired was a floor debate in which the statements of staunch conservative Senator Brownback (R-KS) sounded functionally identical to those of the late liberal lion Senator Kennedy (D-MA). The final bill received only one negative vote in the entire Congress. Despite a research literature firmly divided over genetic discrimination’s very existence and whether a law like GINA would have economic repercussions, the entire political spectrum acted with unanimity to create genetic antidiscrimination laws. Why? Because genetic discrimination is unfair.

Social fairness tends to trump other concerns. Even if racial discrimination were economically rational, for example, it likely would remain prohibited as offensive to our fundamental sense of justice. The legal enforcement of social fairness is the very essence of antidiscrimination legislation and it explains why GINA received near unanimous approval, despite the uncertainty about genetic discrimination.

The difficulty comes in explaining why genetic discrimination is unfair, even if we believe it be so. This essay—like the Note from which it is adapted—probes the boundaries of genetics as a category and of the social fairness invoked in support of that category. The result is not a conclusion or recommendation, nor a critique of GINA. Instead, it explores how genetics and the seemingly clear principles of social fairness can break down, revealing an altogether more complex, normative, and ad hoc approach than at first glance.

 
I.
What is Genetic Discrimination?

Exploring the human genome has uncovered numerous genetic variations that may indicate and, perhaps someday, control disease. In 1990, researchers identified particular chromosomal variations associated with breast cancer. Carriers of these “BRCA” mutations bear a substantial risk of developing breast cancer—anywhere from thirty to eighty percent. This discovery presented obvious benefits: better targeting meant better preventive treatment and earlier detection. Soon after, researchers found links to Huntington’s disease and cystic fibrosis. Over the next two decades, there would follow hundreds of other theoretical connections between specific health outcomes and identifiable genetic variations, with countless more to come.

But this information could have negative consequences, especially in terms of medical insurance. For individuals seeking insurance, such genetic predispositions might be the ultimate in preexisting conditions, bringing fears of lost or denied coverage. Stories of these difficulties soon followed. A 1995 article in Science describes a healthy four-year-old child denied coverage twice because doctors discovered—after his mother and maternal uncle died of sudden cardiac arrest—a genetic pattern that increased susceptibility to heart conditions. Interviews appeared with people who sought tests for genetic predispositions to cancer, but worked to hide the test from their insurers, lest they lose coverage.

The workplace brings a similar worry. An employer providing group insurance could view a job candidate with a genetic predisposition to disease as a financial liability who could drive up that employer’s costs, insurance or otherwise. If that financial risk exists, then a potential employee with a genetic predisposition to disease is no doubt disfavored relative to one without that predisposition.

These are the archetypal examples of genetic discrimination, now barred by GINA.

 
II.
Genetic Antidiscrimination as a Matter of Fairness

Discussions of genetic antidiscrimination inevitably turn to the “disability” model of fairness, whereby people should not be made to suffer for immutable conditions for which they themselves are blameless. Not coincidentally, much of GINA’s operative language mirrors the language of the Civil Rights Act of 1964 and of the Americans with Disabilities Act, the most prominent antidiscrimination laws focused on immutable and involuntary characteristics. Senator Levin (D-MI) crisply summarized the disability model as applied to GINA: “We do not determine our own DNA. We are born with it. We cannot allow discrimination on the basis of such a fundamental aspect of life and one in which we had no choice.”²

Surveys show that this idea resonates, prompting public support for accommodations and general feelings of empathy. Consider a spectrum of impairments: At one end of the spectrum is a condition like blindness, where support for accommodation and protection is nearly universal. People generally believe that the blind have neither caused their condition nor are able to change it. At the other end would be conditions like drug addiction and obesity, broadly considered not to merit legal protection or specific accommodation.  In the popular conception, drug addiction is neither immutable nor is the sufferer blameless because the addiction appears to be within his control. In the case of obesity, studies show that the perception of blame prompts distinctly negative social biases. Genetics would be, in this model, similar to blindness.

Reinforcing the disability model’s natural relationship to genetics is their inclusion in the Equal Employment Opportunity Commission’s interpretation of the ADA. An Executive Order by President Clinton expressed the intention of his Administration to include genetic conditions within the scope of the ADA and the EEOC’s protection. Thus, the fairness guarantees of the ADA—and presumably the fairness principles that justify disability law—applied to genetics. In the disability model, society is willing to bear some amount of cost-sharing and market distortion in order to protect an afflicted class it views as blameless and helpless, and it now wishes to extend that categorization to genetics.

 
III.
The Problem of Categorizing “Genetics”

When we say we wish to protect genetics because they represent a fixed source of involuntary disadvantage, do we mean it?

Surely, we want to protect the four-year-old who cannot get insurance because of a genetic predisposition to heart disease. We want to protect the woman whose increased risk of breast cancer makes her an increased financial liability to her employer. The category of genetics, however, and the disability model by which we support it may be inexact ways of capturing that sentiment.

The first difficulty with categorizing genetics is that it may not be a discrete category at all. Genetic information is fundamentally medical information, albeit medical information obtained through a particular method. The thinness of this distinction relative to the bold lines created by antidiscrimination legislation have led some to criticize the phenomenon of “genetic exceptionalism”—the idea that genetics and the information it provides are somehow different in kind from comparable non-genetic medical information. Critics of a genetics-oriented approach to legal protection charge that the distinction is fundamentally arbitrary and elevates the method of acquiring information (genetics) above the content of that information (diseases and predispositions).

The possibly illusory nature of the boundary between genetic and non-genetic is highlighted by the difference between what is and is not considered permissible under various pre-GINA state genetic antidiscrimination laws. Some state laws bar consideration of genetic test results but allow consideration of family history that, without any specific “genetic testing,” would suggest genetic predispositions. Thus, intuiting the presence of a BRCA variation by family history would be permissible, whereas a genetic test for the very same information would be impermissible. Before GINA, Texas’s genetic antidiscrimination law specifically delineated that the former would not count as genetic testing, and thus would be permissible. Other states banned this practice as a subset of genetic discrimination.

Investigating a greater likelihood of heart disease through a combination of heart rhythm, cholesterol, and blood pressure measurement is permissible and reasonably common, possibly even in an individual insurance context. Determining a greater likelihood of heart disease by detecting a chromosomal variation is impermissible, though such a chromosomal link has been identified, and may prompt the permissibly identified secondary symptoms.

As new genetic links are found, more potential conditions will become “genetic” and the use of genetic markers to detect them will, in theory, become legally problematic. Perhaps more curious, however, is that few expect this to happen, imagining a clarity between protected genetics and unprotected genetics. But, of course, once that distinction is made, the notion of a category—rather than a normatively selective grouping—grows quite murky.

 
IV.
Genetics Test the Limits of Immutability

The disability model itself in the context of genetics may be less applicable than it first seems. Reflexively, we sympathize with the bearer of a disadvantageous genetic predisposition. The person with the predisposition to cystic fibrosis, especially the person who has manifested cystic fibrosis, has drawn a card that many feel, under other circumstances, they themselves could have drawn. These are the clean examples of genetics as disability with obvious and pleasing divisions. But a broader look at genetic predisposition calls into question how applicable the characteristics of immutability and blamelessness are to the category of genetics as a whole, or which genetic predispositions people would be comfortable protecting.

The fixed and unchanging nature of genetic variations may be more flexible than is generally assumed. The first sense in which this is true is the potential someday to literally alter one’s genetic makeup through the burgeoning practice of gene therapy. Early research suggests techniques that could modify, correct, or blend specific genes. The practical medical application of such technology, already in trials, could well emerge in the near future. Such direct control over genetics would cast new light on the questions that currently characterize the genetic discrimination debate. If genetic therapy could correct for genetic variations, would it be appropriate for an insurer who covers such therapy to charge more to patients who choose not to get it? Would it be appropriate for employers to recommend such treatment? Surely we would not ask someone to alter her race. Are her genetics the same?

More complex questions along the same lines also arise regarding the ability to affect one’s predisposition to a disease even if unable to affect the genes underlying that predisposition. Environmental changes, medicine, and surgery all can reduce the likelihood that a person predisposed to a disease will ever actually suffer it. For example, a woman with the BRCA gene variations predisposing her to breast and ovarian cancer can functionally eliminate her increased risk through hysterectomy or preventive mastectomy. Although it hardly satisfies a sense of social justice to condition affordable medical care on a willingness to undergo such an invasive and personally difficult procedure, some might think it wholly appropriate for insurers to be able to judge on that basis if a pill-based treatment could achieve the same effect.

The introduction of such possibilities creates a sliding scale along which to view the evaluation of genetic information: If a procedure were effective and non-invasive, would it be worth creating a market distortion and collectively bearing added risk in order to protect someone’s ability to refuse that procedure? What if the procedure were only moderately invasive? GINA does not incorporate the ability of a person to mitigate his or her risks in prohibiting the actuarial consideration of genetic information. Still, once the condition appears to be within a person’s control, the fair outcome, even under a disability model, becomes less certain.

 
V.
Immutability’s Just Another Word for “Things We Don’t Mind”

Even accepting genetic conditions to be immutable, the discovery of genetic bases for conditions generally considered behavioral calls into question what blamelessness means in the context of an immutable predisposition. In the popular press, genetic research has produced such tantalizing headlines as “Can’t Quit Smoking? Blame Your Genes,” suggesting that the voluntary behaviors underlying addictions may actually invoke involuntary, immutable genetics.³ This calls into question what it means for a person suffering the effects of one genetic condition (for example, breast cancer) to be blameless while a person suffering another (for example, drug addiction) shoulders responsibility. We can never quantify whether it is harder for a person with a predisposition to drug use to abstain throughout his or her life than for a person with a predisposition to cancer to undergo preventive surgery. Genetic predispositions to ostensibly behavioral conditions reveal our inability to truly separate the involuntary from the voluntary and the immutable from the malleable.

Homosexuality presents another interesting dilemma as a characteristic that may have a strongly genetic component. Unlike genetics, sexual orientation has no federal antidiscrimination protection, and yet we would not necessarily expect the possible genetic origins of homosexuality to place that characteristic under GINA’s protection. We would also not expect such protections to have the kind of unanimity that characterized GINA’s passage. Studies have shown that the belief that homosexuality is an inborn genetic trait is highly correlated to a willingness to provide additional rights and protections based on sexual orientation.

This tracks with the immutability model of fairness, a belief that the immutable merits protection; but the correlation may well occur in the other direction, so that favoring protection predisposes one to believe that the characteristic is immutable. Indeed, groups morally opposed to the expansion of gay rights reject claims of a genetic basis for sexual orientation; this suggests that in addition to favoring protections for that which we recognize as immutable, we may choose to see as immutable that which we feel is deserving of protection, and to see as chosen that which we do not.

 
Conclusion

In late October, an Italian court reduced the sentence for a convicted murderer on a finding that he had a genetic predisposition to violent behavior. In theory, the moral logic underpinning this decision perfectly echoes the sentiments codified domestically through GINA. Yet the legal and scientific presses, here and abroad, greeted this story with skepticism and troubled curiosity. Could this be what we—and our unanimous Congress—mean by holding people harmless for their genetic predispositions?

Nice as that categorical approach sounds, it does not seem to be what we actually want. Seven months after GINA’s passage, the New York Times reported on a limited trend of parents who tested their infant and toddler children for genetic modifications indicating the potential to excel at particular sports. These parents did not try to shield children from genetic fate, or to see that their lives remain unaffected by immutable genetic constraints. Quite the contrary. We can envision the story’s eager parents promoting their children’s genetic predispositions to potential trainers, even to the detriment of children born comparably “deficient.” We are, in short, only beginning to learn what our genetics (and those of our children) mean. We are conflicted over what to do with the information, and how it may change our understanding of our fates, our free will, and our obligations to one another.

Is all genetic discrimination unfair? If so, is it unfair for reasons we can clearly articulate, or is it simply a matter of faith? A fuller examination of genetics and their implications suggests that the common notions of fairness do not support the entire category of genetics very well. Indeed, the logic behind these constructs devolves into the circular and ad hoc.

Genetics may eventually become a category that encompasses so much as to render itself meaningless. It may prove medically malleable. And to the extent that genetics are immutable, that immutability may suggest a different approach to sexual orientation, addiction, obesity, athletic inclination, and even personality traits. Although genetic antidiscrimination promises broad categorical protections, its realization may favor a narrower, more normatively determined segment of genetics.

Acknowledgments:

Copyright © 2010 Georgetown Law Journal.

Jeffrey S. Morrow is a 2010 J.D. Candidate at Georgetown University Law School.

This Legal Workshop Editorial is based on the following Student Note: Jeffrey S. Morrow, Insuring Fairness: The Popular Creation of Genetic Antidiscrimination, 98 GEO. L.J. 215 (2009).

 
I.
The Common Law of Interpretation

Such interpretive rules of thumb are judge-made.  I argue, therefore, that the common law should be understood to encompass interpretive methodology in addition to the traditional substantive common law subjects, such as the law of torts.  Judge-made rules of interpretation develop because methods of legal reasoning attach to results and weakly constrain judges in future cases.  Thus, the canons form a body of interpretive common law that legitimizes sources and methods of legal reasoning, all with an eye toward how the legislature would want its intent to be effectuated.  The common law canons do more to limit the sources of legal reasoning than they do to order them with precision: resorting to context is fine, resorting to statutory purpose is fine, but employing outlandish extrinsic sources of meaning is not.  However, the common law of interpretation has no prevailing rules for when an interpretation based on statutory purpose should trump a conflicting interpretation based on context.  In this sense, though the “canons of construction are no more than rules of thumb that help courts determine the meaning of legislation,”¹ they do, in fact, constrain and direct interpretive approaches to statutory construction, albeit weakly.

Judges, however, are not the only players in the development and ordering of canons of construction.  When a legislature enacts statutes, its members have certain ideas about how those words convey meaning.  To economize language and the legislative process, the legislature may rely on prevailing rules of interpretation extrinsic to that particular statute.  Legislatures may even prescribe rules and methods by which they wish their statutes to be construed.  Scholars and commentators often discuss “legislative preferences,” as expressed in statutes, with respect to particular policies.² But “legislative preferences,” as expressed in statutes, with respect to interpretive method remains an uncharted subject.

 
II.
The Codified Canons

Every legislature in the United States has codified canons—interpretive rules of thumb—to guide statutory interpretation, but these codifications have received virtually no attention in the academy.  By comparing the code-wide interpretive preferences of each legislature in the United States with the common law canons,³ I ask whether the common law canons, and the dominant theories of statutory interpretation underlying them, are consistent with how legislatures want their statutes to be interpreted.

I have classified common law canons as codified or rejected by a particular statute.  The principle I have used to determine whether there is a codification or rejection is whether a codification forecloses or endorses the use or nonuse of a particular canon.  These classifications should be treated as signposts to the common law canons rather than fully textured enactments.  It is crucial to consult the source codification because whenever complicated and diverse rules are forced into simplified boxes, resolution is lost; as is clear from the large variety of codifications quoted in the full paper, the rules are complex and multifarious.  This is what the catalog of general interpretive directives looks like: http://www.georgetownlawjournal.org/issues/pdf/98-2/Scott_AppendixB_FullColor.pdf.⁴

 
III.
Interpretive Methodology in an Age of Codified Canons

These legislative interpretive directives, however, are not expressed in a vacuum—the enactments often ratify or reject judge-made canons of construction.  Because the canons are nothing more than methodological common law, legislative enactments that repudiate or support canons should not only be included in any conversation about the canons, but also considered important and controlling.

The codified canons, therefore, provide a measure against which a particular common law canon can be compared.  The three dominant theories of how statutes should be interpreted—new textualism, intentionalism, and pragmatism—are each comprised of a collection of assertions about which interpretive rules are appropriate or legitimate sources of meaning.  Each theory claims individually to be the most appropriate method for construing statutes in a democracy.  Just as the legitimacy of a particular common law canon is tied to each theory’s normative claim that it is the most appropriate method for construing statutes in a democracy, conversely, the legitimacy of each theory depends on whether legislatures have ratified or rejected the interpretive rules upon which the theory relies.  Because the three dominant theories of statutory interpretation are comprised of particular rules (and in some cases a hierarchy of those rules), the codification patterns permit conclusions to be drawn about the extent to which each of the three major theories can vindicate their claim of being the most appropriate interpretive method for democratically enacted statutes.

The codifications suggest that the prevailing interpretive toolbox should be revised and recalibrated, and that the three currently dominant theories of statutory construction—and their claims to being the most appropriate approach for construing statutes in a democracy—should be re-evaluated in light of legislative choices. In short, legislative preferences (1) validate intentionalism despite critical concern about what constitutes dispositive legislative intent, (2) vindicate textualism’s commitments to plain meaning, context, integrity, and coherence, but not textualism’s embargo on extratextual sources, which runs contrary to the law of many jurisdictions, and (3) support pragmatic theory’s elevation of concrete methods of reasoning over abstract methods and its organization of sources of meaning in a hierarchical fashion (for example, statutory text, legislative purpose, specific and general legislative history, the evolution of the statute, and finally, current policy), but legislative preferences do little to create a finely variegated list of which canons trump each other.

These general conclusions, however, should not obscure the fact that interpretive method is jurisdictional; it depends on how the jurisdiction’s legislature directs its statutes to be construed.  In jurisdictions where there are no codified canons and no relevant constitutional provisions, the common law canons—insofar as those baseline rules can be identified—prevail.  But in the absence of legislative or constitutional directives, the common law of interpretation should at least be informed by prevailing legislative preferences.  In the development of the common law generally, courts will look to other jurisdictions for new developments.  As a result, when a judge approaches the common law of interpretation, the interpretive rules of similar jurisdictions should matter in some degree.  Even though “such legislative expressions may not be directly applicable or binding,” in the exercise of their common law jurisdiction “courts should be responsive” to canons codified elsewhere as expressive of legislative interpretive preferences, which “can serve to shape and add content to the common law.”⁵ This is especially so where some codification patterns shake the underlying assumption of common law canons: that they reflect legislative interpretive preferences.  Each time a judge deploys a common law canon, the selected interpretive method should be carefully scrutinized to determine whether it is sound.  The common law judge can either dismiss a canon codified elsewhere as foolish or ill advised—legislatures, after all, can be wrong—or conclude that the codified canon is a sensible aid to statutory interpretation. But legislative preferences in this area should not simply be ignored or ruled out of bounds.

Therefore, interpreters in jurisdictions where common law canons have not been displaced by interpretive statutes or constitutional directives should note the pattern of codifications.  They should resist interpreting statutes in ways that have been widely rejected by legislatures (such as strict constructionism).  Where a canon has been uniformly rejected, even if by only a few legislatures (such as the last antecedent rule or expressio unius), or is fraught by disagreement between jurisdictions that have spoken on the issue (such as the difference between “and” and “or”), an interpreter must do more work to justify its use.

Conversely, interpreters in jurisdictions without interpretive codifications should more freely rely on common law canons that have been vindicated by legislative preferences (such as reference to context, construing statutes liberally, interpreting ambiguous statutes so as to best carry out their purposes, and using legislative history).  Reliance, however, does not mean blind and dispositive acceptance.  The eclecticism reflected in the codifications demands that interpreters evaluate many sources of statutory meaning before settling on the most plausible interpretation.  A legislature should get the type of interpretation it wants, subject to constitutional limitations.  The particular interpretive philosophy of individual judges may matter less where legislatures have codified the methodology they prefer.

Finally, the high degree of legislative activity seeking to control both interpretive method and sources of meaning exposes the lurking constitutional question of whether legislative control over judicial interpretive methodology is consistent with a jurisdiction’s constitution.  The power struggle between courts and legislatures over interpretive methodology is already, in some jurisdictions, a live issue.⁶ At all events, the mass of legislative preferences should play a role in statutory interpretation unless and until courts declare that legislative activity in this area is unconstitutional.

Acknowledgments:

Copyright © 2010 Georgetown Law Journal.

Jacob Scott is an associate in the Boston office of Ropes & Gray LLP.

This Legal Workshop Editorial is based on the following Article: Jacob Scott, Codified Canons and the Common Law of Interpretation, 98 GEO. L.J. 341 (2010).

We argue for a fundamental change in the way federal courts evaluate the viability of a Bivens claim. Instead of the case-by-case approach that characterizes current law, we think the courts should presume that a well-pleaded complaint, alleging an unconstitutional invasion of individual rights, gives rise to an action for damages under Bivens. In such a world, the “special factors” that the Supreme Court has taken into account when deciding whether to allow an action would no longer operate as a threshold barrier to litigation. Instead, the federal courts would focus on whether Congress has deliberately displaced the Bivens remedy through the adoption of an alternative remedial scheme. This approach would simplify the evaluation of constitutional tort claims against federal actors and bring the doctrine into line with 42 U.S.C. § 1983, which governs similar suits against state actors. It would neither open the courthouse doors too broadly nor threaten federal officers with an unwarranted expansion of constitutional tort liability. The method we advocate is neither controversial nor unwieldy, and draws on the Supreme Court’s recent, unanimous examination of the circumstances under which alternative remedies displace a § 1983 action.⁴

 
I.
The Creation of Uncertainty

The Court’s willingness to analyze the existence of a Bivens action on a case-by-case basis has introduced a layer of uncertainty into constitutional litigation. Rather than assume the existence of a Bivens action for claims against federal officers and agents, the federal courts must first conduct a threshold inquiry to determine if the specific constitutional claim at issue will support an implied right of action. This has resulted in an inconsistent patchwork of available remedies for claims against federal officers. For example, a discharged employee of a member of Congress may bring a Fifth Amendment equal protection claim, but a dissatisfied applicant for government benefits may not press a Fifth Amendment due process claim. Fifth Amendment takings claims have fared slightly better, but retaliation aimed at the exercise of the Fifth Amendment right to resist a government taking of property does not give rise to a Bivens action. Similarly, inmates of federal institutions may bring Eighth Amendment claims for cruel and unusual punishment, but individuals confined in facilities run by government contractors have been less successful. With their hit-or-miss quality, these decisions display the sort of incoherence that often betrays the absence of a clear rationale.

Cases arising out of the Bush administration’s terrorism-related detention and extraordinary rendition programs further highlight these concerns with the case-by-case evaluation of the viability of novel Bivens claims. In a series of cases involving individuals allegedly subjected to extraordinary rendition and harsh and degrading confinement conditions at Guantánamo Bay and elsewhere, the lower federal courts have, thus far, consistently refused to recognize a Bivens remedy.⁵ These decisions reflect uncertainty about how to apply the Supreme Court’s malleable standards and a presumption against the viability of novel claims. Apart from the uncertainty it engenders, the practice of judicial selectivity exemplified by these cases also raises legitimacy issues, along with the possibility that judicial evaluation of the merits of a specific claim may influence the Bivens calculus. In our view, this framework is untenable. We argue that the courts should abandon the case-by-case approach and presume that a well-pleaded complaint for a violation of an individual’s constitutional rights gives rise to a Bivens action.

 
II.
Congress and the Ratification of the Bivens Remedy

Importantly, Congress has already provided a previously ignored legislative backbone for our approach.  In our view, scholars and courts have paid too much attention to the state of the law in 1971, when Bivens was decided, and too little attention to the legislative developments that have occurred in its wake. For instance, Congress took steps in 1974 and 1988 to preserve and ratify the Bivens remedy with amendments to the Federal Tort Claims Act (FTCA). In 1974, responding to concerns regarding the adequacy of a Bivens remedy, Congress expanded the right of individuals to sue the federal government itself for certain common law torts. But Congress deliberately chose to retain the right to sue individual government officers for constitutional torts and rejected draft legislation from the Department of Justice that proposed substituting the federal government as the defendant on such claims.

In the Westfall Act of 1988, Congress took further steps to solidify the Bivens remedy. The Westfall Act virtually immunizes federal government officials from state common law tort liability, substituting the government as a defendant under the FTCA for such claims. In the course of doing so, it declares that the remedy provided against the federal government shall be deemed “exclusive of any other civil action or proceeding for money damages . . . against the employee whose act or omission gave rise to the claim.”⁶ However, Congress chose to preserve the Bivens claim by declaring the exclusivity rule inapplicable to suits brought against government officials “for a violation of the Constitution of the United States.”⁷ The Westfall Act supports our argument for the routine availability of Bivens claims. Both the language of the Act, which expressly preserves claims for constitutional violations, and its structure provide support for our approach. The structural confirmation flows from the fact that the Westfall Act, by transforming claims for law enforcement torts into claims against the United States under the FTCA, largely eliminated state common law remedies as a relevant source of relief for individuals who have suffered a constitutional injury. It is therefore no longer possible, as it was in Webster Bivens’s day, to proceed to judgment against federal officers on the basis of the common law.

Moreover, Congress has declined to make a remedy for constitutional violations available against the federal government under the FTCA, a decision that (under the prevailing law of federal sovereign immunity) forecloses that remedial option. As a result, it makes little sense to assume (as the dissenting Justices did in Bivens and as others have done in later cases) that the denial of a Bivens remedy will leave individuals fully able to pursue claims on a state law theory of liability. Today, Bivens provides the only generally available basis upon which individuals can seek an award of damages for federal violations of constitutional rights. In 1971, it was “damages or nothing” for Webster Bivens, as Justice Harlan vividly explained.⁸ Today, it has become “Bivens or nothing” for those who seek to vindicate constitutional rights.

 
III.
Toward a New Remedial Calculus

Congressional recognition puts the Bivens action on a much firmer federal statutory foundation, analogous if not identical to § 1983. We suggest that federal courts should treat the Bivens action as presumptively available. Such an approach would build on the Supreme Court’s sensible decision in many contexts to treat Bivens actions and § 1983 claims as parallel proceedings warranting similar treatment. As the Court explained long ago, it would be “untenable to draw a distinction for purposes of immunity law between suits brought against state officials . . . and suits brought directly under the Constitution against federal officials.”⁹ We agree that such distinctions are untenable, but we also view both the plaintiff’s right to sue and the defendant’s right to invoke qualified immunity as matters deserving of parallel treatment. With the right to bring a Bivens action presumptively available, the federal courts would no longer need to see themselves as fashioning a right of action to vindicate a novel constitutional claim.  Instead, the litigation would simply focus, as it does under § 1983, on whether the complaint states a claim for violation of the Constitution.

By broadening the analogy to § 1983 and presuming the availability of a Bivens action, our proposed reconceptualization provides a more satisfying explanation of the Supreme Court’s cases and a more coherent account of the shape of constitutional tort doctrine. Many scholars have puzzled over the Court’s willingness in cases such as Bush v. Lucas¹⁰ and Correctional Services Corp. v. Malesko¹¹ to treat the availability of alternative remedies as fatal to the individual’s right to pursue a Bivens claim. Those decisions may make more sense when viewed through the lens of § 1983. In Fitzgerald v. Barnstable School Committee, the Court provided a framework for evaluating when alternative statutory remedies displace the § 1983 remedy for constitutional tort claims.¹² One might sensibly apply this framework in assessing the Court’s decision in Bush v. Lucas, in which civil service remedies for a whistleblower’s constitutional claims served to displace a Bivens remedy.¹³ Similarly, in Parratt v. Taylor, the Court held that the existence of post-deprivation remedies may, in certain circumstances, obviate procedural due process claims for which § 1983 would otherwise provide a remedy.¹⁴ Cases in the Parratt line may help to explain Malesko, which featured allegations of negligence that would apparently fail to support a claim of actionable deprivation. By drawing on the § 1983 framework, the Court could avoid the ad hoc reliance on “special factors” that has characterized its recent Bivens decisions without inviting an unwarranted expansion of federal official liability.

Under our suggested approach of presumptive Bivens availability, the existence of alternative remedies would continue to play a role in the evaluation of each claim, as would the consideration of a range of limiting factors that now enter into the § 1983 calculus. In the end, we believe that both Bivens doctrine and § 1983 doctrine would gain from the development of the parallel approach we advocate here. The resulting framework would give effect to the presumption favoring judicial review of constitutional claims, better reflect Congress’s desire to preserve the Bivens action, and enable the Court to ensure that constitutional rights apply with equal force to the interactions between individuals and officials at all levels of our federal government.

Acknowledgments:

Copyright © 2009 Georgetown Law Journal.

James E. Pfander is Professor of Law at Northwestern University School of Law.

David Baltmanis is Law Clerk to the Honorable Paul V. Niemeyer on the United States Court of Appeals for the Fourth Circuit. He received his J.D. from Northwestern University School of Law in 2009.

This Legal Workshop Editorial is based on the following Article: James E. Pfander &amp. David Baltmanis, Rethinking Bivens: Legitimacy and Constitutional Adjudication, 98 GEO. L.J. 117 (2009).

The full Article from which this Essay is derived reexamines the soundness of this doctrine in light of factual and doctrinal developments since it was adopted in 1892, and introduces a number of arguments against the doctrine. This Essay presents a shortened version of two of the Article’s key arguments: (1) that EBD amounts to an impermissible delegation of judicial and lawmaking powers to the Speaker of the House and President of the Senate and (2) that EBD is inextricably linked to the traditional English concept of parliamentary supremacy and is therefore incompatible with the U.S. Constitution.

 
I.
The Doctrine as an Impermissible Delegation of Judicial Authority

EBD requires complete judicial deference to the determination of the Speaker of the House and the President of the Senate that a statute has been validly enacted in compliance with the Constitution. The practical result, therefore, is that the Supreme Court has de facto relinquished its power to interpret and enforce the constitutional provisions of lawmaking and its authority to determine the validity of legislation. The Court ceded these judicial powers not to Congress as a whole, but to the exclusive and final authority of the legislative officers of Congress.

The question of whether a bill has been properly enacted in compliance with the Constitution inevitably raises questions of constitutional interpretation and questions of fact. The questions of what exactly are the procedural requirements set forth in Article I and what constitutes compliance with these requirements are undeniably questions of legal interpretation rather than questions of fact. The problem is that EBD takes the authority to answer these two questions away from the courts and places it exclusively in the hands of the Speaker of the House and the President of the Senate. The result is first an abdication of the courts’ authority to interpret the Constitution and to enforce it according to the judicial understanding of what the Constitution means.  But the greater malady is that EBD designates the legislative officers as the only interpreters and enforcers of the lawmaking provisions of the Constitution. In essence, it is the practical equivalent of a doctrine that would require courts to accept as conclusive the presiding officers’ attestation that an Act does not violate the Bill of Rights.

 
II.
The Doctrine as an Impermissible Delegation of Lawmaking Authority

EBD can also be seen as enabling an impermissible delegation of Congress’s lawmaking authority to the presiding officers. By treating any bill signed by the presiding officers and the President as “law,” and designating the presiding officers as the sole judges of the validity of laws, EBD allows, in effect, the creation of “law” through Congress’s enrollment procedure, rather than by Congress as a whole through the procedure mandated by Article I, Section 7.

The problem here is less that EBD allows an abduction of Congress’s lawmaking power by the legislative officers, but rather that it permits Congress to abdicate some of its lawmaking authority to the legislative officers, in order to circumvent the procedure set out in Article I, Section 7.

Imagine, for example, that Congress is interested in passing an extensive piece of legislation and that the House and Senate are able to agree on all of its provisions, save one specific issue. The Constitution provides the chambers of Congress with only two options: either agree on an identical form of the bill or fail to pass the bill at all. In certain situations, the choice between succumbing to the other chamber and sacrificing the entire bill presents a real dilemma. Both options might carry heavy costs, such as ceding important policy preferences, antagonizing voters, losing prestige, and so forth. In such situations, EBD provides, in effect, a tempting third option: instead of choosing between these two evils (and taking responsibility for this choice), each chamber can pass its own version and effectively delegate the authority to choose between them to the legislative officers. This scenario is less imaginary than one might assume. According to some accounts, a similar scenario occurred in the enactment of the Deficit Reduction Act of 2005.

The Supreme Court has repeatedly held (in other contexts) that “Congress may not delegate the power to legislate to its own agents or to its own Members”² and that “Congress may not exercise its fundamental power to formulate national policy by delegating that power . . . to an individual agent of the Congress such as the Speaker of the House of Representatives . . . .”³ These decisions clearly perceived “legislative self-delegation” by Congress to its own components as more objectionable than conventional delegations of lawmaking power to administrative agencies.⁴ A major reason for this distinction is that “[i]f Congress were free to delegate its policymaking authority . . . to one of its agents, it would be able to evade ‘the carefully crafted restraints spelled out in the Constitution.’”⁵ This concern is particularly applicable here. Although a bill that does not satisfy the requirements of Article I does not become a law, under EBD, the signatures of the presiding officers effectively turn invalid law into valid law. Consequently, EBD recognizes and permits, in effect, an alternative lawmaking procedure, which is inconsistent with the Court’s constant avowals that Congress “must follow the procedures mandated by Article I of the Constitution—through passage by both houses and presentment to the President” in order to legislate.⁶

 
III.
The Doctrine and Legislative Supremacy

According to the traditional English view of parliamentary supremacy (or sovereignty), Parliament, as the legal sovereign, is the source of all law, and therefore, there can be no legal limitations on its legislative competence, and no person or body may override or set aside its legislation. The orthodox English view considers lawmaking as a sovereign prerogative and the legislative process as a sphere of unfettered omnipotence. Following the orthodox view, English courts interpreted the principle of parliamentary supremacy as banning courts from questioning the validity of Parliament’s legislation on any ground, including defects in the enactment process. Indeed, in England, where EBD originated, this doctrine is viewed as “inextricably related to . . . parliamentary sovereignty.”⁷ In the United States, EBD was never explicitly linked to legislative supremacy. However, this section argues that EBD amounts to acceptance of the English concept of parliamentary supremacy.

EBD effectively insulates the legislative process from judicial review and, consequently, establishes Congress’s unfettered power to control this process. This doctrine has properly been characterized as “a prophylactic rule, which blocks all inquiry into the alleged procedural flaws in a bill’s adoption”⁸ and as “insulating legislative enactments from challenges based on faulty enactment procedures.”⁹ The doctrine represents, therefore, a judgment that the legislature may operate in the legislative process without any judicial oversight at all and, consequently, without any meaningful legal (as opposed to political) constraints.

Furthermore, EBD requires courts to shut their eyes even to the most obvious and egregious violations of the Constitution’s lawmaking requirements and “to hold statutes valid which they and everybody know [sic] were never legally enacted.”¹⁰ The doctrine compels courts to hold statutes valid even when it is clear beyond doubt and openly admitted that the statute was enacted in blatant violation of the constitutional requirements for lawmaking. Thus, the practical result of EBD is non-enforcement of the procedural lawmaking requirements of the Constitution. Consequently, these constitutional requirements become “binding only upon the legislative conscience.”¹¹ This permits habitual and flagrant disregard of constitutional requirements in the legislative process. Some state supreme courts have even argued that the consequence of EBD is that “the wholesome restrictions which the Constitution imposes on legislative and executive action become a dead letter . . . .”¹²

Hence, EBD amounts to a judicial declaration that the enactment process is completely beyond the reach of courts, that courts may not question the validity of legislation, and that the lawmaking provisions of the Constitution are (judicially) non-enforceable. This position comes very close to the orthodox English view of parliamentary supremacy, according to which there are no legal limitations on the legislative process and courts may not question the validity of legislation. By viewing the enactment process as a special sphere of governmental activity that is completely immune from judicial review, EBD creates an “island of legislative supremacy” in the United States.

 
IV.
The Doctrine’s Incongruity with the U.S. Constitution

Legislative sovereignty and the idea of a supreme, omnipotent legislature are, of course, entirely foreign to the U.S. Constitution. It is widely recognized that the Framers of the U.S. Constitution rejected the traditional idea that sovereignty is lodged in parliament, or in any other governmental body, in favor of the idea that “in America, the only legitimate sovereign was the People, who could delegate different powers to different governments in any way.”¹³ It is likewise acknowledged as “axiomatic” that the Framers rejected the idea of a supreme, omnipotent legislature in favor of the principle of limited government and the idea of a legislature that is constrained by a supreme Constitution which is prior and superior to the powers of the legislature.¹⁴ Marbury v. Madison has famously taken the additional step of holding that the principles of constitutional supremacy and constitutional restraint of the legislature require judicial enforcement of the Constitution.¹⁵ Academic criticism of Marbury notwithstanding, constitutional supremacy and judicial review are as central and well-settled in America as parliamentary sovereignty was (until recently) in the United Kingdom.

In treating lawmaking as a sovereign prerogative and the legislative process as a sphere of unfettered power immune from judicial review, EBD deviates from Marbury and from the fundamental and well-settled principles of American constitutionalism. In fact, the words of Chief Justice Marshall in Marbury rejecting the view that “courts must close their eyes on the Constitution” are strikingly applicable to EBD, as well:

This doctrine would subvert the very foundation of all written constitutions. It would declare that an act, which, according to the principles and theory of our government, is entirely void; is yet, in practice, completely obligatory. It would declare, that if the legislature shall do what is expressly forbidden, such act, notwithstanding the express prohibition, is in reality effectual. It would be giving to the legislature a practical and real omnipotence, with the same breath which professes to restrict their powers within narrow limits. It is prescribing limits, and declaring that those limits may be passed at pleasure.¹⁶

Since the 1930s, several courts in constitutional democracies concluded that EBD is inconsistent with constitutional supremacy and unjustified in legal systems that have a written constitution. In common-law countries, such as Australia and South Africa, courts held that:

The principle that the courts may not examine the way in which the law-making process has been performed has no application where a legislature is established under or governed by an instrument which prescribes that laws . . . may only be passed if the legislature is constituted or exercises its functions in a particular manner . . . .¹⁷

Several civil-law constitutional democracies, such as Germany and Spain, also rejected their equivalent doctrines (the interna corporis acta doctrine) as part of their “transition from the model of parliamentary supremacy to the model of constitutional supremacy,” and as “a natural outgrowth of the explicit rejection of the English model [of] parliamentary supremacy.”¹⁸

Even the English judges acknowledged that EBD is justified in England by the fact that in “the United Kingdom there is no governing instrument which prescribes the law-making powers and the forms which are essential to those powers;”¹⁹ however, in legal systems where such an instrument exists, “a legislature has no power to ignore the conditions of law-making that are imposed by the instrument which itself regulates its power to make law,”²⁰ and courts, in turn, have a “duty to see that the Constitution is not infringed and to preserve it inviolate.”²¹

The English origins of EBD; the contemporary discussions of this doctrine in England and the Commonwealth; and the development of judicial review of the legislative process in common-law and civil-law countries all seem to yield a similar conclusion: EBD appears to be contingent upon the orthodox view of legislative supremacy. Judicial review of the legislative process is considered to be a natural consequence of rejecting this view.

 
Conclusion

EBD has far-reaching ramifications that have been largely overlooked in existing discussions. The doctrine amounts to an impermissible delegation of power to the legislative officers of Congress and embodies a concept of legislative supremacy that was clearly rejected by the Framers of the Constitution. Indeed, the English courts based EBD on the fact that they “sit . . . as servants of the Queen and the [supreme] legislature.”²² In the United States, where both the Court and the legislature are “servants” of the supreme Constitution, EBD is inappropriate.

Acknowledgments:

Copyright © 2009 Georgetown Law Journal.

Ittai Bar-Siman-Tov is Associate-in-Law, Morris Fellow and Fulbright Scholar at Columbia Law School.

This Legal Workshop Editorial is based on the following full-length Article: Ittai Bar-Siman-Tov, Legislative Supremacy in the United States?: Rethinking the “Enrolled Bill” Doctrine. 97 GEO. L.J. 323 (2009).

I.

Minority shareholders typically play an active role in closely held corporations, but, if serious differences arise, majority shareholders have the power to call the shots, including whether to employ minority shareholders and whether to declare dividends.  Absent additional bargained-for rights, minority shareholders may find themselves unemployed and frozen out of any return on their investment.  Unlike shareholders in public corporations, minority shareholders cannot protect themselves by selling their stock and exiting the corporation.  There is no public market for close corporation stock, by definition, and who would be willing to buy a minority interest in a business after the shareholders have had a falling out?

In order to salvage their investment, minority shareholders may seek judicial intervention.  However, because claims of minority shareholder oppression involve the standard features of a close corporation—majority control and locked investment—courts face a dilemma.  If they revise central terms of the relationship after the fact to avoid perceived unfairness to minority shareholders, courts diminish the viability of the close corporation as a distinct form of business organization.  For that reason, some courts refuse to recognize any doctrine of shareholder oppression, observing that corporate law permits minority shareholders to bargain for desired protections before investing.¹ In a majority of jurisdictions, though, courts either borrow the heightened fiduciary obligations of partnership law, holding controlling shareholders to a higher standard than would be required under corporate law, or provide relief to the extent a minority shareholder’s “reasonable expectations” have not been met.²

Taken at face value, each of these standard approaches is flawed—either too quick to dismiss the specific challenges faced by the minority in a close corporation or else too willing to impose vague obligations on the majority.  But there is also a procedural aspect to the evaluation of claims of oppression.  Often, controlling shareholders can assert a plausible business justification for conduct that disadvantages the minority and the underlying facts will be hard to ascertain.

In close cases, as a practical matter, the outcome may depend more on the level of scrutiny applied by the court in deciding whether the minority’s claim of oppression has merit than on any divergence in the substantive standard for oppression.  Thus, whether the core obligations of controlling shareholders are understood primarily in contractual or fiduciary terms, it independently matters how hard the court will look to see if the obligations have been met.  Unless a court places some burden on the majority to substantiate its proffered justification, the minority shareholders will almost certainly lose.

II.

Despite its importance, the procedural dimension of minority shareholder litigation has received little notice.³ The level of scrutiny instead seems to correlate with the substantive standard in a particular jurisdiction, reflecting either a relatively permissive or strict attitude toward the majority’s right to enjoy the benefits of control.  The procedural and substantive questions can be disaggregated, however.  I argue that courts should embrace this flexibility and should use minority “voice” to set the appropriate level of scrutiny.

Flexible judicial scrutiny based on voice would improve existing approaches to shareholder oppression, allocating pleading or production burdens to the party best able to meet them.  If the minority lacks a voice in the business—in other words, a meaningful opportunity to review information relevant to important corporate governance decisions and to participate in the decisionmaking process—courts should apply enhanced scrutiny, accepting general pleadings and requiring controlling shareholders to establish a legitimate business purpose for challenged conduct. When adjudicating claims of shareholder oppression in close corporations with substantial minority participation—paradigmatically, representation on the board of directors—courts should apply more relaxed scrutiny, giving substantial deference to the majority’s business judgment absent evidence of self-dealing or bad faith.⁴

Although it might seem odd to focus on voice when the more pressing issue for minority shareholders, in the event of a freeze out, is lack of exit, the two problems are connected.  The foundation of my argument is Albert Hirschman’s classic insight that exit and voice are interrelated mechanisms and that economic and political responses to a firm’s decline may be complementary.⁵ For example, regular customers at a restaurant may complain of bad service, if they think that will help; if service does not improve, they can shift from voice to exit and take their business elsewhere.  Given the restrictions on exit in a close corporation, minority shareholders must rely on voice to protect their interests when potential conflicts arise.  The proposed voice-based framework would offer close corporations an incentive to include substantial minority input in corporate governance decision making, and it would guide judicial analysis when litigation cannot be avoided.

III.

In the article, I identify three major objections to the proposed voice-based framework.  First, why not attack the problem of oppression directly by creating an enhanced right of exit for minority shareholders? Second, and related, why worry about minority shareholder voice when, at the end of the day, the majority still has the power to make the decisions? Third, since shareholders have the ability to bargain for desired protections, or to choose a different form of business organization, why give minority shareholders a voice option they did not bargain for?

Admittedly, an automatic right of exit would seem to simplify matters by eliminating the need for complex liability determinations.  Professors Matheson and Maler, for example, have proposed a statutory right of exit akin to a no-fault divorce.⁶ My principal concern is that creating a right of exit would undermine the significance of the close corporation form and the shareholders’ interest in having a locked investment.  If corporate law rules can be circumvented without even a showing of fault, the distinction between a partnership and a close corporation will be lost.  To the extent choice of form has value, the loss of a meaningful choice is a cost to consider.

It also seems unclear whether an automatic exit right would actually reduce the cost of litigation.  Given the lack of an established market for shares, creating liquidity for close corporations involves considerable valuation difficulties.  Under existing doctrine, there must be a showing of harm before any remedy is available, which limits litigation and focuses those lawsuits that do go forward on liability issues that courts are better suited to address.  Even if no-fault exit promises some efficiency benefits, those savings may not amount to much because litigating valuation will also be expensive.

Moreover, minority shareholders could gain too much power in the governance of the close corporation.  While some boost in exit could enhance voice by backing it with a credible threat, the possibility of shareholder litigation may already serve that function.  If the threat of exit becomes too strong, given the need for locked investment, then minority shareholder demands may overwhelm sensible decision making.  (For similar reasons, the problem of oppression cannot be solved via mandatory voice-enhancing mechanisms like veto power or super-majority voting because those mechanisms, too, would shift power to the minority, creating a risk of deadlock or the extraction of rents to avoid holdout problems.)

However, my modest insistence that minority shareholder voice is important to the health of close corporations and should guide the intensity of judicial scrutiny leaves me open to a different kind of objection—that voice, as I define it, has no practical value.  Allowing a minority shareholder to have her say and then outvoting her is, for all practical purposes, the same thing as just outvoting her.  The problem with the objection is that it conflates voice with voting.

Although majority shareholders ultimately decide all contested questions, voice is a political mechanism and need not be synonymous with control.  A person’s ability to participate and to be heard on issues important to a shared enterprise, whether family, business organization, or nation-state, does not turn on the final tally of votes.  Voice is not as crude a mechanism as exit; its value lies in its nuance, as a means of shaping the goals of a close corporation to better accommodate the interests of all shareholders.  Corporate decisions based on transparent, open discussion will more often serve the interests of all shareholders and the minority will more likely accept the results of an inclusive, deliberative process as fair.

Finally, some scholars may object that voice-based scrutiny would disregard the choice of business form made by the parties, altering the bargain they thought they had.  The objection is misplaced.  The proposed framework does not change substantive doctrine or impose a new fiduciary obligation; rather, to the extent controlling shareholders are already prohibited from appropriating the value of the minority’s investment, I contend that courts should place the burden on the party best able to meet it.  A more flexible, voice-centered model of judicial scrutiny would better serve the interests of minority shareholders and the close corporations to which they belong.

Even if the proposal could be understood to restrict the ability of parties to customize control arrangements, because minority voice determines the level of judicial review, the choice-of-form objection would remain unconvincing.  One of the distinguishing features of corporate law is the mandatory fiduciary duty of loyalty owed by controlling shareholders to the corporation—directly or by dint of their control of the board of directors.  If investors want to sharply limit fiduciary duties, perhaps in favor of enhanced, contractual exit rights, the choice-of-form theory indicates that they should pick a partnership or limited liability company form more amenable to contractual modification.

Acknowledgments:

Copyright © 2009 Georgetown Law Journal.

Benjamin Means is Assistant Professor of Law at University of South Carolina School of Law.

This Editorial is based on the following full-length Article:  Benjamin Means, A Voice-Based Framework for Evaluating Claims of Minority Shareholder Oppression in the Close Corporation, 97 GEO. L.J. 1207 (2009).

My article addresses how risk governance thinking shapes both treatment protocols and judicial review of coverage decisions. In this summary, I focus on a third set of questions covered in the article: the political and normative argument for an approach to health care allocation decisions that fosters deliberative democracy.

Virtually everyone experiences the health care system, but the public’s knowledge about health-related policy involves far more breadth than depth. The system’s underlying structures of financial risk allocation are complex and not well known or understood. The result is that despite an intense media focus on the politics of reform, policy decisions are effectively hidden from the public, even if they are hidden in plain sight.

The public’s relation to health care policy also lacks, in large part, a participatory dimension. Limits on public understanding and knowledge are exacerbated by limits on mechanisms by which members of the public can participate effectively in health-related policymaking. Although individuals are increasingly empowered as patients, the idea that serious public engagement with health care system governance is a viable concept seldom surfaces in public consciousness.

In this article, I seek to offer both a normative argument for enhancing democratic engagement in health care system governance and a proposal for doing so grounded in the pragmatic spirit of democratic experimentalism. I argue that beyond the identities of patient and consumer, individuals should occupy the role of citizen in the health care system. Because governance encompasses more than just actions by the state, a meaningful concept of citizenship in the health care system must be applied to private sector institutions as well as to government.

 
I.
Building New Publics for Health Policy

One way to begin addressing the problem of Americans’ shallow engagement with health policy issues is to conceptualize such debates as occurring within a particular “public,” using the analytic structure developed by Jürgen Habermas.¹ In Habermas’s work, the concept of a public denotes a cultural and social space for dialogue about shared concerns; there can be many publics. Habermas claims that the quality of society depends on the quality of our dialogic engagement on important issues. The quality of that engagement, in turn, depends on whether the procedures for engagement reflect core ethical concerns, such as equality of participation.

Because democracy is not possible without meaningful participation, we advance democratic norms in the governance of any system when we enhance the capacity of citizens to debate and discuss substantive issues and to participate in their resolution. Once one sees the health care system as centered on risk managerialism, the central issue for enriching the democratic characteristics of such a system becomes how to empower citizens to participate more effectively in the politics of risk allocation and distribution.

My suggestion is that we consider using risk pools as a venue for building publics in the Habermasian sense. A risk pool is the organizational and governance unit of any insurance plan. However, it is seldom thought of in terms of self-governance. Risk pools are actuarial constructs. They exist as clusters of individuals whose characteristics cause them to fall within some category of risk relevant to the form of insurance being sold (for example, the risk pool of teenage drivers or of beachfront property owners). They usually lack any social meaning for their members.

But the risk pools that compose almost all group health insurance are different in important ways. Employer-sponsored insurance (ESI) creates risk pools consisting of individuals who share a common employer, many of whom know each other, some quite well. Because membership in the plan is determined by reasons other than the goal of securing insurance, and because a large workplace plan invariably includes persons in a broad range of health status categories, ESI plans are “natural risk pools.” The link to employment creates a material reason for individuals not to exit the risk pool lightly, which diminishes the likelihood of high transaction costs for the insurer.

These same factors also make the ESI risk pool attractive as a site of governance for its participants. The link to employment that creates a material reason for individuals not to exit the risk pool also provides an incentive for employees to join a participatory risk governance process for the plan, were one to be offered. Many employees might welcome the opportunity to negotiate collectively with employers about health insurance benefits and other collective goods, without committing to full-scale union representation on all issues.²

Most importantly, a workplace health insurance group maps precisely onto a set of rich, dense, and strong social relationships. Using the work of Robert Putnam and other social scientists, employment law scholar Cynthia Estlund has built a powerful argument that democratic theory has underestimated the importance of workplaces in advancing democratic ends.³ Three of Estlund’s assertions stand out as relevant to the project of workplace-based risk pool governance. First, people often build their civic skills in the workplace, through discussions of political and other issues of public importance conducted in relatively public spaces. Second, outside of family or close friends, social ties at the workplace provide people with a stronger sense of belonging than any other institution in their lives. Third, greater racial diversity exists in the American workplace than in most other civic settings, including neighborhoods and schools.

The network of social connections at work also provides a useful foundation for effective governance of health risk. In the best case scenario, the social connections in work settings could facilitate the development of norms of reciprocity and trustworthiness, which in turn reinforce patterns of cooperation. This social capital helps to overcome problems of collective action, such as the resistance to engaging with difficult allocation decisions (the tragic choices problem) or the inclination to reject certain risks for oneself to achieve the gain that would result from someone else assuming them (the prisoner’s dilemma problem). The decision-making group grounded in a risk pool would operate without necessarily knowing what serious illnesses they or their families might suffer.

For these reasons, at least some workplace insurance plans have the potential to function also as publics. In ideal form, they would create space for political participation, debate, and opinion formation within the economic sector and as part of the system of risk managerialism. Their deliberations would require participants to engage with the arguments, concerns, and beliefs of others in the same risk pool, thus creating the potential for understandings that transcend self-interest.

Harnessing the economic power of risk pools to democratic governance structures could have a powerful effect on the quality of American political culture as it engages with health policy issues. Providing mechanisms for citizens to participate in shaping the parameters of their own health insurance could open up the discourse of risk allocation, which is currently dominated by management.

Finally, an important contribution of self-governance structures at the level of risk pools would be to make it easier for citizens to infuse risk allocation discourse with ethical values. As Deborah Stone has argued, insurance is a technology of governance that invites contemplation about issues of social responsibility because it requires resolution of questions about compassion and collective responses to suffering. In a world of individualism and competition, the very presence of insurance “legitimates social obligation and mutual aid.”⁴ More widespread citizen engagement with such issues would, in effect, democratize the norm setting implicit in the process of health insurance risk allocation.

 
II.
Concerns and Shortcomings

In contrast to my approach, many health policy experts argue for a complete de-linking of health insurance from the workplace. Their argument is that the economic distortions from an ESI system outweigh any benefits that come from administrative convenience. The most powerful argument against ESI is that it is doubly destructive: it fragments the overall population, thus undercutting social insurance principles, and it subsidizes individual health care consumption, thus creating moral hazard. Path dependency, not logical reasoning, has kept us locked into the workplace system for health insurance. I find these critiques of ESI to be compelling as rationales for a national, universal system of health care delivery, which I support. But given the enduring popularity of ESI, I offer a counter-perspective: infusing ESI risk pools with worker governance mechanisms could advance both democracy and justice.

I do, however, recognize that many shortcomings of an ESI system would carry over into attempts to foster greater employee control. Perhaps the bottom-line issue is how much power such democratized structures would have and how much discretion and authority employers would retain. It is naïve to imagine that such institutions could function outside of the power relations around them. Given those inequalities, the question is whether participants would be able to deliberate under conditions of egalitarian reciprocity and universal respect. If the aspiration of deliberative democracy is to create institutions that “tie[] the exercise of power to free reasoning among equals,” the very thickness of background social relations in a workplace may make it difficult to achieve that result among co-workers.⁵

Workplace power relations would inevitably produce problems in such an arrangement. Cooptation of workers by employer interests, the possible capture of the process by those most motivated to further their self-interest, or the simple failure of group members to fairly represent other workers all come to mind as possibilities. The history of gender and racial inequities within unions provides merely one example of the fact that more democratic norms in workplace relations are hardly a panacea for injustice.

Although these issues illustrate the ambitiousness and difficulty of using risk pool governance structures, the problems are not insurmountable. Ground rules would be necessary to prevent such groups from exacerbating, rather that moderating, inequities in health insurance. One protection would be to limit risk pool governance to the largest workplace groups, those with a significant degree of built-in diversity of interests. Additionally, legal restrictions to require justification for limitations on coverage would be necessary to counteract tendencies to exclude those with stigmatized diseases, such as HIV/AIDS. If we do achieve an expansion of insurance through health reform proposals currently under discussion, other ground rules would presumably include coverage of all (including part-time) employees and a minimum basic benefits package.

It is not practical to require every employer-sponsored plan to have a democratized risk pool governance structure. But it seems realistic to imagine that policies might be put in place to enable risk pool governance structures in workplaces with a large enough number of employees to constitute a robust risk pool and a meaningful degree of diversity. My goal here is not to set forth a full blueprint of a workplace-based risk pool governance structure. Rather, it is to encourage the idea of embarking on an experimentalist project through which these complexities can be explored.

 
III.
Toward Justice

The proposal that I have outlined speaks to how the concept, identity, and role of citizen can become a viable component of health care system governance. But it also offers the potential for advancing norms of distributional justice. Ideally, it could initiate a discourse of interdependency that could ultimately lead to greater equity.

Risk governance in health care represents a powerful compound of economic policy and moral normativity. The practices of risk allocation identify certain risks to be collective, others to be assumed by individuals; they mark certain actors as eligible for protection, others as not; and they incentivize certain conduct, but not all conduct, as socially beneficial because of its tendency to diminish risk. Allocating financial risk structures choices about who will receive what forms of care, who will pay for what kinds of illness, and how quality or negligence will be defined.

Our traditional constructs for addressing justice issues have not effectively engaged these health equity problems. Liberal rights discourse has never proven adequate or even fully relevant as a basis for confronting the gaping health care hole in the quality of American life. Negative liberty principles offer no purchase for contesting private actions, and even equality mandates that extend into the private sector seem insufficient for a problem that does not fit the minoritizing discourse of civil rights issues. Moreover, the individual fairness focus of a civil rights mandate can cut against an argument for community sharing of risk.

Debates on the ethical dimensions of health care have thus been dominated by the conflict between the insurance industry’s principle of “fair discrimination” in allocating risk and the solidarity norms of social insurance. For those who wish to advance equity in health care while still acknowledging the risk structure that governs the health system, it has been difficult to find a framework that engages both risk and equity in an effective manner.

Addressing issues of equity within a risk allocation paradigm offers a new and, I would argue, better way to capture and articulate the stakes at issue in the debate. It allows us (indeed, it forces us) to identify who gets included and excluded in the pooling process; how allocation decisions are made; and whether there are systems of accountability built in to produce a risk allocation scheme that is equitable, efficient, and flexible in determining how and to whom various kinds of risk are apportioned. Calling the system for what it is, and how it actually operates, is the most honest way to address the underlying values.

Simply establishing a risk-centered normative frame will not, of course, resolve the tensions. Risk talk can cut both ways. It is highly elastic, capable of framing normative issues around invocations of both solidarity and short-term self-interest. But governance structures based in risk pools would provide a framework through which advocates of greater equity could make their claims.

 
IV.
Conclusion

Mechanisms governing and distributing financial risk are what drive the health care system today.  The system’s viability is contingent on efficient risk allocation, but the inherent tensions and trade-offs between equity and efficiency in health care could be negotiated in a more open and democratic process. Such a venue is missing in the contemporary American health care system, both in the status quo and in proposals for reform. Regardless of whether health care financing mechanisms change in the future, increasing citizen engagement in the health care system will remain important. For something as central to our lives and our economy as the health system, we should interrogate much more vigorously than we have so far our conventional understanding of whether and how democratic norms and structures could provide mediating processes for risk-centered decision-making.

Acknowledgments:

Copyright © 2009 Georgetown Law Journal.

Nan. D. Hunter is Professor of Law at Brooklyn Law School.

This Editorial is based on the following full-length Article:   Nan D. Hunter, Risk Governance and Deliberative Democracy in Health Care, 97 GEO. L.J. 1 (2009). Click Here for the Full Version

In Natural Resources Defense Council v. Environmental Protection Agency, petitioner Natural Resources Defense Council (NRDC) challenged an administrative rule that regulated production and use of the pesticide methyl bromide. To evaluate NRDC’s standing to sue, the D.C. Circuit calculated the “excess fatalities” that might be expected among the petitioner’s members as a result of the rule. Based on its calculations, the panel asserted that “‘[e]ven if all present NRDC members were immortal…we could expect to wait approximately 12,000 years…before seeing the first…methyl bromide [rule]-related death.’” As a result, the panel concluded, NRDC lacked standing to proceed. Although the panel has since withdrawn this math-laden opinion, subsequent cases confirm that a petitioner seeking to establish standing to raise an increased-risk claim in the D.C. Circuit must demonstrate both (1) that the challenged agency action “creates a substantial increase in…risk” and (2) that the “ultimate risk of harm to which [the plaintiff is] exposed…is [also] ‘substantial.’”¹

This substantiality-of-the-risk standing threshold seems superficially plausible as a safeguard to prevent “virtually any citizen” from challenging “virtually any [agency] action.” On closer evaluation, however, the threshold reveals itself as the most far-reaching and ill-conceived maneuver in a longstanding drive to place constitutional constraints on Congress’s power to define injuries that confer standing.

That drive is rooted in cases from the 1930s and 1940s that deliberately invoked a private rights framework to reject various plaintiffs’ constitutional standing to challenge the lawfulness of progressive New Deal enactments. In such a framework, harms that do not violate a legal right are “damnum absque injuria” and cannot support a right to sue. These early standing cases said nothing, though, about Congress’s authority to expand the category of legal injury by, for example, crafting statutory citizen-suit provisions that permit the beneficiaries of a regulatory regime to challenge an agency’s misapprehension or under-enforcement of that regime.

By the early 1990s, however, the Supreme Court had called such citizen-suit provisions into question. To begin with, the Court had concluded that the key to constitutional standing is not legal injury (recognized by Congress in a duly enacted statute) but instead injury-in-fact (substantiated by concrete evidence of an injury to the particular plaintiff or to a discrete group of comparably situated individuals). In this regime, the mere existence of a statutory cause of action is not sufficient to grant standing to particular plaintiffs if they cannot also point to a factual harm from the defendant’s challenged action. Then, in Lujan v. Defenders of Wildlife, the Court went one step further, expressly suggesting that expansive citizen-suit provisions may violate Article III’s case-or-controversy requirement and encroach on the President’s responsibility “to ‘take Care that the Laws be faithfully executed’” because such provisions recognize too broad an injury, effectively permitting almost anyone to file suit to ensure “executive officers’ compliance with the law.”

Importantly, however, two of the Justices in the majority in Lujan emphasized in a partial concurrence that in their view Congress does have the authority “to define injuries and articulate chains of causation that will give rise to a case or controversy where none existed before,” provided that the relevant statute both identifies “the injury [Congress] seeks to vindicate” and ties that injury “to the class of persons entitled to bring suit.” This concurrence served to mitigate—and obscure—the significance of the majority’s holding. The majority opinion clearly “foreclose[d] ‘pure’ citizen suits,” in which someone with nothing more than an “ideological or law-enforcement interest initiates a proceeding against the government, seeking to require an agency to undertake action of the sort required by law.” But the concurrence preserved the constitutionality of more narrowly tailored citizen-suit provisions. Court-watchers speculated as to which of these somewhat contrary views would ultimately carry the day.

Between 1992 and the present, the Supreme Court largely allayed concerns that it would expand on the ideas in the Lujan majority opinion and utilize the standing inquiry to bar Congress from relying on citizen attorneys general to ensure enforcement of the nation’s environmental, public health, and welfare laws. The D.C. Circuit’s standing threshold, however, moves standing doctrine a nontrivial step in that very direction. The circuit’s requirement that plaintiffs facing a risk of future injury must demonstrate the substantiality of that risk before they may challenge the causative agency action derives from the same ostensible separation of powers concerns expressed in Lujan. Specifically, the threshold aims to ensure that courts do not overstep their constitutional role: In the D.C. Circuit’s view, if courts were empowered to hear all probabilistic injury claims, then “after an agency takes virtually any action, virtually any citizen—because of a fractional chance of benefit from alternative action—would have standing to obtain judicial review of the agency’s choice.”² This outcome, in turn, would “expand the ‘proper—and properly limited’—constitutional role of the Judicial Branch beyond deciding actual cases or controversies, and would entail the Judiciary exercising some part of the Executive’s responsibility to take care that the law be faithfully executed.

The D.C. Circuit’s approach has little theoretical foundation and numerous theoretical and practical flaws. What is most remarkable about the approach, though, is that it goes considerably further than the Lujan majority did in limiting Congress’s power “to define injuries . . . that will give rise to a case or controversy.” As noted above, two of the six Justices who signed the majority opinion in Lujan recognized only two qualifications on congressional authority to identify new, legally cognizable injuries: To grant citizen standing, legislators must specify the injuries they aim to address and the relationship between those injuries and the class of citizens who may sue. The D.C. Circuit approach is far more limiting—no matter how specific and carefully drafted the statute, legislators may not grant standing to individuals who face only a tiny increase in risk of harm.

This outcome is sufficiently novel and important that it is worth restating. Read together, the Lujan majority and concurring opinions place a constitutional burden on legislators. By contrast, the D.C. Circuit’s substantiality-of-the-risk standing threshold places a constitutional limit on legislative authority.

The D.C. Circuit’s notion of a justiciability limit that hinges on the substantiality of the risk to the plaintiff exhibits profound confusion about the institutional roles of Congress, the agencies, and the courts. In many situations, Congress has clearly recognized a risk (for example that associated with air pollution or with injuries in car accidents), directed an agency to address that risk, and enlisted citizen attorneys general to ensure that the agency complies with its statutory duty. Implicit in the resulting legislation is the creation of a legally enforceable right to benefit from the agency’s action in the manner and to the degree envisioned by Congress. Also implicit is a reduction in the degree of power delegated to the Executive. The agency to which Congress has granted regulatory authority has the power to act only in compliance with Congress’s policy choices, as detailed in the relevant statutes and interpreted first by the agency and later (with deference) by the courts. Further, only Congress has the authority to decide whether and to what degree the agencies are free to neglect their statutory responsibilities:

If Congress wants to create a statutory scheme that may lapse in desuetude if the Executive Branch decides not to implement it, Congress is free to specify (as it occasionally does) that there shall be no private right to compel any enforcement of the scheme. If, on the other hand, Congress does not wish a particular program to be lost in vast bureaucratic hallways, . . . Congress [may] enable any citizen to demand implementation of the statutory scheme.³

In the former situation, there is no cause of action and thus no room for the court to apply a standing threshold. In the latter situation, though, a court that uses a substantiality-of-the-risk threshold to determine which citizen attorneys general have standing redefines the legal injury as limited to beneficiaries facing substantial risk, and thus revisits legislative choices Congress has already made. This outcome is doubly problematic. Not only does the court second-guess the legislators’ determination that citizen attorneys general are needed “to demand implementation of the statutory scheme,” but it also usurps the patently legislative responsibility of determining what sorts and levels of risk society should tolerate.

In short, by means of a superficially objective discussion of risk statistics, the D.C. Circuit attains precisely the outcome that critics of Lujan denounced: “A clear statutory expression of authority [to sue falls] before the notoriously amorphous demand for a constitutional ‘case.’”⁴ The problem is more serious in the D.C. Circuit than in the Supreme Court, however, because the Lujan Court identified a constitutional flaw that Congress could easily remedy by specifying the injury more clearly and relating that injury to the plaintiff class. In contrast, the D.C. Circuit posits a constitutional flaw that Congress lacks authority to remedy. In the D.C. Circuit, no statute, no matter how specific and well-drafted, may recognize tiny risks as legally cognizable. Thus, the standing threshold permanently and irremediably limits congressional authority, as Justice Kennedy wrote in Lujan, “to define injuries and articulate chains of causation that will give rise to a case or controversy where none existed before.”

Needless to say, courts need not provide a judicial remedy to all plaintiffs who can demonstrate that agency action or inaction has placed them (or left them) at risk. Even if such expansive judicial oversight of agency action were constitutional and desirable, it would be impossible to implement. Human life is—and agency actions are—fraught with risk; granting a remedy to anyone who complains that an agency failed adequately to reduce her risk of snake bite or lightning strike would give judges unconstitutional power to review and reorder regulatory priorities. Of necessity, then, Congress and the courts must draw some lines between cognizable risk-based injuries and unreviewable exercises of agency discretion.

There is no need, however, for a new, judicially created, and under-theorized standing threshold to police this territory. Congress has already drawn some lines in the form of statutory citizen-suit provisions. If those lines are improvidently drawn, Congress could fix the problem by narrowing such provisions—perhaps requiring, for instance, that plaintiffs challenging pollution regulations live within some radius of regulated smokestacks, or that those challenging automobile safety regulations drive a certain number of miles each year. Courts, too, have identified lines, by refining the standing requirements of causation and redressability and by developing doctrines of prosecutorial discretion and deference. Adding assumption-laden and eminently manipulable risk estimates to this mix serves only to hide hard questions under a veneer of superficially simple but contested and largely misdirected mathematics.

Acknowledgments:

Copyright © 2009 Georgetown Law Journal.

Amanda Leiter is Associate Professor, Catholic University Columbus School of Law.

Many thanks to Tabatha Abu El-Haj, Hope Babcock, Peter Byrne, Julie Cohen, Heather Elliott, Chai Feldblum, Richard Frankel, Amanda Frost, Craig Goldblatt, Charisma X. Howell, Greg Klass, Richard Lazarus, Carrie Menkel-Meadow, Tzili Mor, Eliza Platts-Mills, Jonathan Molot, Sam Sankar, Justin Smith, David Vladeck, Sasha Volokh, Dave Zaring, Allison Zieve, and the Georgetown Junior Law Profs for thoughts, comments, and moral support, and to Corey Talcott for outstanding research assistance.

This Editorial is based on the following full-length Article:nbsp;nbsp;Amanda Leiter, Substance or Illusion? The Dangers of Imposing a Standing Threshold, 97 GEO. L. J. 391 (2009).nbsp;nbsp;Click Here for the Full Version

This has been dramatically illustrated by the subprime crisis. The initial trigger of the cascade of failures that led to this crisis was the historically unanticipated depth of the fall in housing prices.¹ Loans to risky, or “subprime,” borrowers were often made with the expectation of refinancing through home appreciation. When home prices stopped appreciating, these borrowers could not refinance. In many cases, they defaulted.²

These defaults in turn caused substantial amounts of investment-grade securities backed by these mortgages to be downgraded and, in some cases, to default.³ Investors began losing confidence in these securities, and their prices started falling. Mark-to-market accounting rules and the high leverage of many firms exacerbated the fall.⁴

The refusal in mid-September 2008 of the government to save Lehman Brothers, and its resulting bankruptcy, added to this cascade. Securities markets became so panicked that even the commercial paper market virtually shut down, and the market prices of mortgage-backed securities collapsed substantially below the intrinsic value of the mortgage assets underlying those securities.⁵ Banks and other financial institutions holding mortgage-backed securities had to write down their value, causing these institutions to appear more financially risky, in turn triggering concern over counterparty risk.⁶

Although the federal government has taken numerous steps to address this collapse, including enacting the Emergency Economic Stabilization Act of 2008, most of its steps to date have focused on institutions, not markets.⁷ Such a narrow focus worked well when banks and institutions were the primary source of corporate financing. But as the financial crisis reveals, this focus is insufficient now that companies obtain much of their financing directly through capital markets.  

My article argues that institutional systemic risk and market systemic risk should not be viewed each in isolation. Institutions and markets can be involved in both. This integrated perspective is useful because a chain of failures of critical financial intermediaries, by definition, would significantly affect the availability and cost of capital. These failures, therefore, implicitly become a proxy for market consequences. In contrast, a chain of failures of institutions that are not critical financial intermediaries could only significantly affect the availability or cost of capital when those failures are large enough to jeopardize the viability of capital markets.

As disintermediation increases, therefore, systemic risk should increasingly be viewed by its impact on markets, not institutions per se.

 
I.
Analysis

My article focuses on regulating systemic risk. This is a subset of the problem of regulating financial risk. Scholars argue that the primary if not sole justification for regulating financial risk is maximizing economic efficiency. Because systemic risk is a form of financial risk, efficiency should be a central goal in its regulation.

Efficiency has a somewhat unique added dimension in the context of systemic risk. Without regulation, the externalities caused by systemic risk would not be prevented or internalized because systemic risk pertains to risks to the financial system itself. Market participants are motivated to protect themselves but not necessarily to protect the system as a whole. As a result, there is a type of tragedy of the commons, in which the benefits of exploiting finite capital resources accrue to individual market participants, each of whom is motivated to maximize use of the resource, whereas the costs of exploitation, which affect the real economy, are distributed among an even wider class of persons. Any regulation of systemic risk thus should focus not only on traditional efficiency but also on stability of the financial system.

In examining regulatory approaches to systemic risk, one should also take into account the costs of regulation. These can include direct costs such as hiring government employees to monitor and enforce the regulations, and indirect costs such as potential moral hazard. In identifying regulatory approaches, my article takes these costs into account, as well as the goals of efficiency and stability.

After reviewing historical approaches, my article concludes that attempts to regulate systemic risk can be imperfect and messy. Furthermore, the historical focus has been on bank systemic risk and related monetary policy. Modern models of regulating systemic risk should also focus on non-bank and market failures. The article includes these other failures in its focus.

To this end, the article identifies and critiques the following regulatory approaches.

 
A.     Averting Panics

The ideal regulatory approach would aim to eliminate the risk of systemic collapse, ab initio. Theoretically this goal could be achieved by preventing financial panics, since they are often the triggers that commence a chain of failures. I have separately argued that the subprime financial crisis itself was triggered by financial panic.⁸ Any regulation aimed at preventing panics that trigger systemic risk, however, could fail to anticipate all the causes of the panics. Furthermore, even when identified, panics cannot always be averted easily because investors are not always rational.

 
B.     Requiring Increased Disclosure

Another potential regulatory approach is to require increased disclosure. Disclosing risks traditionally has been viewed, at least under U.S. securities laws, as the primary market-regulatory mechanism. It works by reducing, if not eliminating, asymmetric information among market players, making the risks transparent to all.

In the context of systemic risk, however, individual market participants who fully understand that risk will be motivated to protect themselves but not the system as a whole.⁹ Imposing additional disclosure requirements may even prove counterproductive, causing market participants to change their behavior. For example, traders may become more cautious, demanding that prices move farther before making trades, thereby ultimately reducing market liquidity.

The efficacy of disclosure is further limited by the increasing complexity of transactions and markets. A contributing factor to the recent subprime crisis, for example, is allegedly that many institutional investors bought mortgage-backed securities substantially based on their ratings without fully understanding what they bought.

The article thus concludes that requiring increased disclosure would do relatively little to mitigate the potential for systemic risk.¹⁰

 
C.     Imposing Financial-Exposure Limits

The failure of one or more large institutions could create defaults large enough to de-stabilize other highly-leveraged investors, increasing the likelihood of a systemic market meltdown. This suggests another possible approach to regulation: placing limits on inter-institution financial exposure. Financial-exposure limits would facilitate stability by diversifying risk, in effect by reducing the losses of any given contractual counterparty and thus the likelihood that such losses would cause the counterparty to fail. Limits also might reduce the urgency, and hence the panic, that contractual counterparties feel about closing out their positions.

This approach already applies to banks through lending limits, which restrict the amount of bank exposure to any given customer’s risk. Its application beyond banks to other financial institutions is potentially appealing given the increasing blurring of lines between banks and non-bank financial institutions and the high volumes of financial assets circulating among non-bank financial entities.

It is questionable, though, whether the government should impose financial exposure limits on institutions. Large financial institutions already try to protect themselves through risk management and risk mitigation. The subprime crisis has raised questions, though, whether conflicts of interest among managers and other failures can undermine institutional risk management.¹¹

 
D.     Requiring Reduced Leverage

Requiring reduced leverage could reduce the risk that an institution fails in the first place. It also could reduce the likelihood of transmitting financial contagion between institutions. But requiring reduced leverage create significant costs. Some leverage is good, and there is no optimal across-the-board amount of leverage that is right for every institution.

 
E.     Ensuring Liquidity

Ensuring liquidity could facilitate stability in two ways: by providing liquidity to prevent institutions from defaulting, and by providing liquidity to capital markets as necessary to keep them functioning.

The U.S. Federal Reserve Bank already has the role of providing liquidity to prevent institutions from defaulting, by acting as a lender of last resort. This approach is costly, however. By providing a lifeline to financial institutions, a lender of last resort fosters moral hazard by encouraging these entities—especially those that believe they are “too big to fail”—to be fiscally reckless.¹² It also can shift costs to taxpayers since loans made to institutions will not be repaid if the institutions eventually fail.¹³

The subprime crisis has shown that, in an era of disintermediation, more attention needs to be focused on providing liquidity to capital markets as necessary to keep them functioning.¹⁴ This approach should also be less costly than lending to institutions. A market liquidity provider of last resort, especially if it acts at the outset of a market panic, can profitably invest in securities at a deep discount from the market price and still provide a “floor” to how low the market will drop. Buying at a deep discount will mitigate moral hazard and also make it likely that the market liquidity provider will be repaid.¹⁵

One might ask why, if a market liquidity provider of last resort can invest at a deep discount to stabilize markets and still make money, private investors won’t also do so, thereby eliminating the need for the market liquidity provider. One answer is that individuals at investing firms will not want to jeopardize their reputations (and jobs) by causing their firms to invest at a time when other investors have abandoned the market. Another answer is that private investors usually want to buy and sell securities, not waiting for their maturities, whereas a market liquidity provider of last resort should be able to wait until maturity, if necessary.¹⁶

 
F.     Ad Hoc Approaches

The cost and effectiveness of ad hoc, or purely reactive, regulatory responses to systemic risk are, of course, partly dependent on what those responses turn out to be. Ad hoc approaches do not always work. Sometimes they are too late and the harm has been done or no longer can be prevented, and sometimes there is insufficient time to fashion and implement an optimal solution. 

Nonetheless, the article argues that ad hoc approaches should not be dismissed out of hand. They can help to minimize the difficulties in measuring, and balancing, costs and benefits; and they can reduce moral-hazard cost to the extent an institution cannot know in advance whether, if it faces financial failure, it will be bailed out or fail.

 
G.     Market Discipline

Under a market-discipline approach, the regulator’s job is to ensure that market participants exercise the type of diligence that enables the market to work efficiently. This was the type of approach taken by the United States government under the second Bush administration.

Textbooks claim that perfect markets would never need external regulation, thereby providing support for a market-discipline approach. However actual markets, including financial markets, are not perfect. Furthermore, my article has argued that, even theoretically, a firm can lack sufficient incentive to limit its risk taking in order to reduce the danger of systemic contagion for other firms.

The subprime financial crisis dramatically confirms this argument, that preventing systemic risk through market discipline does not always work. Market discipline may nonetheless be attractive as a supplement to other regulatory approaches.

 
II.
Recommendations and Conclusions

Of the regulatory approaches identified, my article finds that regulation establishing a market liquidity provider of last resort not only should have benefits likely to exceed its costs but also is the approach that would have the best chance of minimizing systemic risk under any number of circumstances. The article recommends that such a market liquidity provider be made operational because market collapses can occur rapidly and without warning.¹⁷

The article’s analysis on cost-benefit balancing is not, and in the absence of empirical evidence cannot be, conclusive. All that can truly be said with confidence, the article claims, is that so long as the cost of a systemic meltdown is much greater than the cost of regulation, then regulation should be justified.

This nonetheless provides a useful way of thinking about the cost-benefit balancing because, as the subprime financial crisis has demonstrated, the cost of a systemic meltdown can be catastrophic. Moreover, the article argues, when regulation deals with health and safety issues—as could arise in the case of systemic risk due to its societal impact—the cost-benefit balancing should go beyond strict econometrics. For example, when addressing the risk of catastrophic events or large, irreversible effects where the actual level of risk is indeterminate, regulators often apply a precautionary principle under which they may decide to regulate an activity notwithstanding lack of decisive evidence of the activity’s harm. This same type of precautionary principle, the article argues, should be considered for regulating systemic risk—and thus for assessing the cost-benefit balancing of creating a market liquidity provider of last resort.

Recent experience in the subprime financial crisis supports establishment of a market liquidity provider of last resort. Providing liquidity to the failing mortgage-backed securities markets would have helped to raise the prices of these securities to levels that more closely reflect their real value, bringing back investor confidence.¹⁸ With confidence, credit markets would have reopened, mortgage money would have once again become available, and home prices would have begun rising.¹⁹

Finally, because financial markets and institutions increasingly cross sovereign borders, the article examines how these regulatory approaches might work in an international context. This examination includes the feasibility of internationally regulating systemic risk, the extent to which a market liquidity provider of last resort or other regulatory solutions are universal or should be different for different countries, and the potential for a regulatory race to the bottom if regulation is done only on a national level.

Acknowledgments:

Copyright © 2009 Georgetown Law Journal.

Steven L. Schwarcz is Stanley A. Star Professor of Law & Business, Duke University School of Law; Founding Director, Duke University Global Capital Markets Center.

Professor Schwarcz’s congressional testimony and his numerous articles on systemic risk and the “subprime” financial crisis are available on his SSRN page at http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=33796.

This Editorial is based on the following full-length Article:  Steven L. Schwarcz, Systemic Risk, 97 GEO. L. J. 193 (2008). Click Here for the Full Article.

Because this topic is no longer purely academic, this Editorial revisits the original article’s theoretical framework from the perspective of the current subprime financial crisis—a crisis resulting from a systemic cascade of failures.