The Sovereign Shield.

AuthorElengold, Kate Sablosky

Table of Contents Introduction I. Expanding the Sovereign Shield A. The Sovereign-Shield Doctrines 1. Preemption 2. Derivative sovereign immunity 3. Intergovernmental immunity B. Pulling Together the Five-Factor Framework. 1. Congressional intent 2. Character of the contracted institution and its contract 3. Discretion of the contractor 4. Whether the contractor exceeds its authority under contract 5. Effect on federal policymaking and decisionmaking II. The Case of Student-Loan Servicers A. A Brief Introduction to Student-Loan Servicing B. Servicers and the Sovereign Shield C. Beyond Capture: The Alliance of Goliaths III. Normative Analysis A. The Scope of Our Claim B. Lack of Redress C. Destabilization of Structural Principles 1. Federalism 2. Separation of powers Conclusion Introduction

The federal government is a unique actor in the national economy. Powerful legal doctrines protect the government from liability for harmful acts and from regulation by states. As the government has come to rely on private businesses to perform an ever-increasing number of tasks, (1) federal contractors have sought to expand those legal doctrines to protect their conduct from oversight and regulation. (2) Both the federal government--more precisely, its executive branch--and federal contractors benefit from this arrangement: Contractors enjoy liability protection and the federal government quietly expands the scope of its authority.

As a sovereign, the federal government has the power to preempt state law, to dictate the limits of regulation of its conduct, and to specify whether, where, and when it can be sued. (3) These benefits--preemption, intergovernmental immunity, and sovereign immunity, respectively-together form the sovereign shield that protects the federal government from regulation and legal liability.

There has long been debate about the utility of this sovereign shield. (4) Because this Article is primarily concerned with private actors, it puts those debates to one side, focusing instead on the reach of the sovereign shield. Government contracting is big business, touching on innumerable kinds of government action. (5) In an era of extensive federal reliance on private means to achieve governmental ends, we ask how far the sovereign shield does and should extend to nongovernmental actors--that is, to those businesses performing "public" work. (6) This Article addresses four critical questions: Can the potent doctrines forming the sovereign shield shelter private companies, contracted to conduct public business, from civil actions? Can they immunize government contractors from state or federal regulation? If so, under what circumstances? And what are the doctrinal and normative implications of such protection?

These are the challenges posed by the expansion of the sovereign shield. This Article examines federal contractors' use of the sovereign shield doctrines-preemption, derivative sovereign immunity, and intergovernmental immunity-to avoid legal liability and regulation. We find that contractors have relied on their relationship with the federal government to escape accountability without precisely defining or distinguishing the sovereign-shield doctrines, using prevailing doctrinal confusion to push the boundaries of the doctrines. (7) Whether contractors have enjoyed more success when using these doctrines in litigation is difficult to assess, and we do not here attempt a quantitative analysis. Rather, we suggest that the attempted exploitation of doctrinal confusion itself constitutes a meaningful and worrisome phenomenon, whether resulting in impunity for a contractor in a specific case or not.

The benefits of expanding the sovereign shield do not flow solely in one direction. Rather, this Article argues that expansion to cover nongovernmental actors enables and fosters a mutually beneficial alliance between corporate contractors and the executive branch. (8) We argue that this alliance operates to strip legal remedies from private individuals and state governments and to impede oversight from state and federal regulators.

These sly, sideways moves reduce the power of individuals and states out of sight of public scrutiny or democratic accountability. Relationships are constructed and conduct is protected through private contract negotiations, in individual courtrooms, or in confidential settlements. When private entities perform federally authorized functions, they may wholly escape state regulation and liability under state law as a result. If the contractor performed the same work for a different client, state power would not yield. But when the federal government is the client, the sovereign-shield doctrines may be invoked, and the contractual relationship with the federal government results in a discreet federal power grab. (9) Together, the executive branch and its corporate servants evade accountability to individual consumers, states, and even other federal overseers in ways that neither could in isolation. The shield would not function as a matter of law were the federal government not involved (due to the nature of the doctrines), and it would not function as a matter of politics if the private companies were not involved (due to mechanisms of federal-agency democratic oversight). (10) It is the combination of reliance on the private sector and the potential availability of a sovereign shield that (1) effectively limits the power of the consumer and the state government; and (2) upsets longstanding balances of power between consumers and companies, states and the federal government, and the executive and legislative branches. (11)

This Article makes three contributions and is thus organized in three parts. The first contribution is to define and disaggregate the doctrines underlying the sovereign shield. Over time, parties and courts have muddled the doctrines of preemption, derivative sovereign immunity, and intergovernmental immunity. Part I sets out the history and current state of these doctrines. It then excavates from the doctrinal morass five thematic factors that courts use to analyze whether the sovereign shield should be extended to nongovernmental actors like federal contractors. In so doing, it offers shape and structure for those seeking to apply, or understand the application of, these doctrines in their current form.

The second contribution is to lay bare how government contractors attempt to exploit these doctrines to stretch the sovereign shield. Federal contractors have asserted sovereign-shield theories in as many types of circumstances as there are federal contracts. A private-prison group operating under a contract with Immigration and Customs Enforcement relied on preemption principles to seek to avoid liability under state minimum-wage laws in Washington. (12) A construction company under contract to do flood-control work for the Army Corps of Engineers defended itself against negligence claims by citing derivative-sovereign-immunity principles. (13) Contractors with the Atomic Energy Commission and the Department of Energy asserted various sovereign-shield theories to defend against allegations of willful, wanton, and grossly negligent conduct in their management of enriched uranium. (14) A United States Navy contractor sought to avoid liability for seizing two privately owned trucks by asserting that the seizure "was an exercise of a power to requisition private property for war purposes essentially inherent in the sovereign." (15) An advertising company under contract with the United States Navy to send marketing solicitations sought protection from liability under the federal Telephone Consumer Protection Act (TCPA) by asserting a derivative-sovereign-immunity defense. (16) A bank providing juror-compensation cards defended against allegations that it had prevented jurors from receiving full compensation and had charged them outrageous fees by hiding behind a contract with the Department of the Treasury. (17) These are but a few examples of instances in which government contractors have sought the benefit of the sovereign shield. (18)

Part II presents an in-depth look at one particular group of federal contractors: private entities servicing the Department of Education's student loan portfolio. We use student-loan servicers as a case study because the government-industry relationship and its consequences illustrate the doctrinal and normative implications of extending the sovereign shield to businesses acting on behalf of the federal government. This is a timely and practical topic because federal and state courts and legislatures are currently wrestling with the application of preemption and immunity defenses to federal student-loan contractors. It is also a theoretically useful one; student-loan servicers operate in a highly structured system in which consumers, states, corporations, and the federal government all inhabit clearly defined roles.

This Article's third contribution, presented in Part III, is to explore the normative implications of an expansive and undefined sovereign shield. Our most crucial observation is that the combination, collapse, and conflation of the preemption and immunity doctrines have allowed nongovernmental actors to expand the size and scope of the sovereign shield in ways that serve the interests of both private businesses and the executive branch, individually and collectively. Treating the sovereign shield as malleable, these private actors, with support from their federal-agency partners, have exploited doctrinal complexity to evade liability under both state and federal law, regulation by individual states, and even federal oversight. Although even a single contractor evading liability at the expense of a single consumer is a problem, that is not our biggest concern. (19) Rather, the incoherence of the doctrine opens the door to a powerful alliance between government and industry that threatens to destabilize the...

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