The Revival of Respondeat Superior and Evolution of Gatekeeper Liability

The Revival of Respondeat Superior and Evolution

of Gatekeeper Liability

RORY VAN LOO*

In an era of servants and masters, respondeat superior emerged to

hold the powerful accountable for the acts of those they control. That

doctrine’s significance has only grown in an economy driven by large

corporations that rely heavily on legions of subsidiaries and independent

contractors, such as banks deploying independent call centers, oil

companies using drilling contractors, and tech platforms connecting con-

sumers to app developers. It is widely believed that firms can avoid third-

party liability for many laws by outsourcing or creating subsidiaries.

This Article shows that common narratives of the demise of third-party

liability are incomplete. Respondeat superior is alive and well. Moreover,

in environmental, employment, consumer protection, discrimination, and

other areas, the law requires large companies to act as gatekeepers by

regulating third parties. These gatekeepers incur liability when they fail to

enforce the law. In light of these features, the expansion of liability would

be aptly described as respondeat gatekeeper.

The task ahead is to understand and reinforce liability’s ongoing adap-

tation to a financially and digitally intermediated world. Updating

courts’ analytic tools to include economics and network theory would

more accurately measure power compared to the current, intuitive

approach. Moreover, courts should view pervasive technologies of

control—most importantly surveillance tools and online platforms—as

stronger evidence of liability. The revival has the potential to restructure

corporations, markets, and society in a beneficial manner by bringing

harmful activities, as a matter of law, back within the fold of the firm.

TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

I. THE DECLINE OF RESPONDEAT SUPERIOR . . . . . . . . . . . . . . . . . . . . . . . . . . 148

A. THE COMMON LAW RISE AND FALL . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

* Associate Professor of Law, Boston University; Affiliated Fellow, Yale Law School Information

Society Project. © 2020, Rory Van Loo. I am grateful to Jennifer Arlen, Ryan Bubb, Julie Cohen,

Rebecca Crootof, Anne Fleming, George Geis, Michael Guttentag, Mike Harper, Ted Janger, Saul

Levmore, Mike Meurer, Frank Partnoy, Danny Sokol, Eric Talley, Andrew Tuch, David Walker, Kathy

Zeiler, and participants at the Loyola Law School (LA) faculty workshop for valuable feedback. Brianne

Allan, Samuel Burgess, Leah Dowd, Derek Farquhar, Shecharya Flatte, Ian Horton, Ryan Kramer, Jack

Langa, Ellen Miller, Kathleen Pierre, and Brittany Swift provided outstanding research assistance. The

Article was first submitted for publication in August 2019.

141

B. THE STATUTORY RISE AND FALL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

C. SCHOLARLY NARRATIVES OF THE DECLINE. . . . . . . . . . . . . . . . . . . . . 154

II. THE REVIVAL AND EVOLUTION OF THIRD-PARTY LIABILITY . . . . . . . . . . . 156

A. REVIVING COMMON LAW AGENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

1. Technological Control. . . . . . . . . . . . . . . . . . . . . . . . . . . 156

a. Three Doctrinal Components: Monitoring,

Instructions, and Punishment . . . . . . . . . . . . . . . . . 157

b. Signs that Courts Are Moving Toward a

Technological Revival. . . . . . . . . . . . . . . . . . . . . . . 159

2. Gatekeeper Governance Control . . . . . . . . . . . . . . . . . . . 162

a. Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

b. Ratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

c. Punishment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

B. EVOLVING LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

1. Judicial Developments . . . . . . . . . . . . . . . . . . . . . . . . . . 166

2. Administrative Agency and Statutory Developments. . . . 168

III. IMPLICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

A. RESTRUCTURING ORGANIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

1. Expanding Large Firms. . . . . . . . . . . . . . . . . . . . . . . . . . 173

2. Building Walled Gardens and Platforms . . . . . . . . . . . . . 175

3. Implications of Strategic Reorganization . . . . . . . . . . . . . 177

B. WEIGHING NORMATIVE FOUNDATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 178

1. Balancing Efficiency and Distribution . . . . . . . . . . . . . . . 178

2. Administering Justice and Adapting the Law . . . . . . . . . . 180

C. MODERNIZING LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

1. Measuring Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

2. Mapping Network Control. . . . . . . . . . . . . . . . . . . . . . . . 184

3. Objections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

142 THE GEORGETOWN LAW JOURNAL [Vol. 109:141

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

INTRODUCTION

Liability is a pillar of the law. It is “the means for enforcing contracts, civil

rights, labor and employment law, environmental regulations, federal tax law, in-

tellectual property law, most kinds of property rights, and just about every other

kind of law on the books.”

1

Some view limited liability as “the corporation’s

most precious characteristic”

2

and an invention more important than “steam and

electricity.”

3

The desire to avoid liability determined the shape of the modern

business organization.

4

Moreover, understanding a firm’s liability boundaries has

become more pressing because businesses increasingly rely on call centers,

online third-party sellers, sales agents, brokers, ride-sharing contract drivers, debt

collectors, delivery services, and many other external providers that may harm

third parties.

5

Despite liability’s centrality to the legal system and industrial organization, an

existential question for decades received limited attention: When is one company

liable for the acts of a separate entity?

6

The legal issue of when a business can be

held liable for the acts of another business traces back to the common law doc-

trine of respondeat superior. The law as long recounted in scholarship, cases, and

textbooks is that except in unusual circumstances, businesses are not liable for

the acts of independent contractors.

7

Additionally, as the Supreme Court has

observed, “It is a general principle of corporate law deeply ‘ingrained in our

1. Lynn M. LoPucki, The Death of Liability, 106 YALE L.J. 1, 4 (1996).

2. William W. Cook, “Watered Stock”—Commissions—“Blue Sky Laws”—Stock Without Par

Value, 19 MICH. L. REV. 583, 583 (1921) (quoting President Charles Eliot of Harvard University).

3. William P. Hackney & Tracey G. Benson, Shareholder Liability for Inadequate Capital, 43 U.

PITT. L. REV. 837, 841 (1982) (quoting President Nicholas Murray Butler of Columbia University).

4. See, e.g., LoPucki, supra note 1, at 21 (“Limiting liability—that is, defeating part of it—is the

principal reason for creating [multiple corporate] entities.”).

5. See, e.g., Margaret M. Blair, Erin O’Hara O’Connor & Gregg Kirchhoefer, Outsourcing,

Modularity, and the Theory of the Firm, 2011 BYU L. REV. 263, 272–90 (describing the hierarchy and

production interdependence of corporations).

6. Sustained attention on the topic has mostly focused on legal subareas without providing a big-

picture perspective, or on economic issues of whether vicarious liability provides an optimal level of

incentive to take precautions. For economic treatments, see, for example, Jennifer H. Arlen & W.

Bentley MacLeod, Beyond Master–Servant: A Critique of Vicarious Liability, in EXPLORING TORT LAW

111, 122–24 (M. Stuart Madden ed., 2005); Richard R. W. Brooks, Liability and Organizational Choice,

45 J.L. & ECON. 91, 93–94 (2002); Alan O. Sykes, The Economics of Vicarious Liability, 93 YALE L.J.

1231, 1233 (1984). For an example of third-party liability in a narrower organizational context, see

Michael R. Flynn, The Law of Franchisor Vicarious Liability: A Critique, 1993 COLUM. BUS. L. REV.

89, 102 (arguing that it is inappropriate to apply vicarious liability to franchisor–franchisee

relationships).

7. See, e.g., Lewis A. Kornhauser, An Economic Analysis of the Choice Between Enterprise and

Personal Liability for Accidents, 70 CALIF. L. REV. 1345, 1375 (1982) (“An enterprise is not liable for

the torts of its independent contractors . . . .”); Gary T. Schwartz, The Hidden and Fundamental Issue of

Employer Vicarious Liability, 69 S. CAL. L. REV. 1739, 1753 (1996) (“[T]he negligence of the

contractor is (absent special circumstances) not attributed to that party.”).

2020] THE REVIVAL OF RESPONDEAT SUPERIOR 143