The Sovereign in Commerce

Abstract

With increasing frequency, the federal government is a commercial actor, providing retail services both directly and indirectly through private sector contractors. Government involvement with and in the private sector is intended to capitalize on the expertise and efficiency of businesses, benefit the taxpayer, and promote public ends. Yet it also confers advantages that benefit the executive branch and its contractor allies at the expense of consumers and states. Our prior work examined how a muddle of doctrines that form a “sovereign shield” can be exploited by contractors and the federal executive branch to evade civil liability and regulatory oversight. It tied the expansion of the sovereign shield to the relative empowerment of the federal government at the expense of the states, the executive branch at the expense of the legislative branch, and the private sector at the expense of consumers. In developing a doctrinal response to the risks identified, this Article draws on insights of scholars who have studied federal-state relations, contractor-agency relations, and business-consumer relations and bridges the gap between these literatures into which the sovereign shield phenomenon falls.

This Article argues that the solution to the sovereign shield problem lies in redefining the question. In determining whether an actor may enjoy protection from liability and regulation under the sovereign shield, this Article proposes that the analysis should turn on the nature of the activity performed, not the identity of the actor performing it. If the activity is commercial, the actor—whether a government agency acting directly or indirectly through its government contractor—should not be protected. This Article provides a protocol for courts to implement such a proposal, drawing on well-established doctrines dating back to Supreme Court decisions from the early 19th century. Shifting to this activity-based approach will help preserve balances of power between states and the federal government, between the executive and legislative branch, and between businesses and consumers.