History offers a better model. Two centuries ago, the law granted release from debtor’s prison through the simple execution of a “poor debtor’s oath”—a short declaration that the debtor lacked substantial assets. For most debtors, modern bankruptcy law should require no more than an updated version of a poor debtor’s oath that provides relief unless creditors or their trustees are willing to pay some cost to challenge the oath’s validity. To discourage the wealthy from taking false oaths, Congress could sharply limit the exemptions available in the simplified procedure. Even dramatically smaller exemptions would protect all of the assets of the overwhelming majority of bankrupt debtors. By avoiding costly processes for debtors who obviously qualify for bankruptcy relief, a modern poor debtor’s oath could save hundreds of millions of dollars in transaction costs each year and greatly expand access to bankruptcy.

Introduction

“The principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor.”¹ 1.See Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (internal quotation marks and citations omitted).Show More The fresh start offers insurance against adverse events, such as unemployment or illness, that debtors either cannot purchase in the marketplace or will not purchase due to volitional or cognitive failures.² 2.Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 Harv. L. Rev. 1393, 1405–18 (1985).Show More The fresh start also protects a debtor’s friends, family, and acquaintances from the consequences of the debtor’s financial distress. It may even protect the broader economy.³ 3.Id. at 1418–24.Show More Insolvent debtors may have little reason to work hard if creditors can seize their earnings.⁴ 4.Id. at 1420–24. For qualifications to this argument, see Richard M. Hynes, Non-Procrustean Bankruptcy, 2004 Univ. Ill. L. Rev. 301, 321–26.Show More

Bankruptcy cannot provide these benefits to debtors who cannot afford to file. Even the simplest form of bankruptcy, Chapter 7, requires more than twenty complex forms and schedules,⁵ 5.For example, in the Central District of California Bankruptcy Courts, at least twenty-seven forms are required to be submitted to the court by Chapter 7 debtors. U.S. Bankr. Ct. for the Cent. Dist. of Cal., Chapter 7 Petition Package (Individual Debtors), 3–6 (Dec. 2020), https://www.cacb.uscourts.gov/sites/cacb/files/documents/forms/Ch7%20IndividualPetitionPackage.pdf [https://perma.cc/JHR2-HMMG].Show More so nearly all debtors hire a lawyer.⁶ 6.Just 6.5% of Chapter 7 debtors file pro se. See infra note 158 and accompanying text.Show More On average, debtors spend more than $1,800 on filing and attorney’s fees.⁷ 7.See Lois R. Lupica, The Consumer Bankruptcy Fee Study: Final Report, Am. Bankr. Inst. 130, tbl.A-6 (Dec. 2011) (listing total direct access costs (attorney’s fees plus filing fees) for no-asset Chapter 7 cases of $1,304 in 2005 dollars). The Bureau of Labor Statistics Inflation calculator converts $1,304 in May of 2005 into $1,806 in May of 2021. CPI Inflation Calculator, U.S. Bureau of Lab. Stat., https://www.bls.gov/data/inflation_calculator.htm [https://perma.cc/33FK-GRDN] (last visited Apr. 3, 2022).Show More These debtors must also pay their attorneys up front because, if the payment were financed, that debt too would be cancelled in bankruptcy. Debtors thus need to “sav[e] up for bankruptcy,”⁸ 8.See, e.g., Ronald J. Mann & Katherine Porter, Saving Up for Bankruptcy, 98 Geo. L.J. 289, 292 (2010). Then-Professor Porter has since been elected to the U.S. House of Representatives.Show More and yet the debtors most in need of bankruptcy are often those who live paycheck-to-paycheck and cannot afford to save up for anything.

Some of the cost of the modern bankruptcy petition is due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”),⁹ 9.Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codified in scattered sections of 11 U.S.C.).Show More legislation supported by then-Senator Joe Biden.¹⁰ 10.151 Cong. Rec. 3, 4351 (2005) (statement of then-Senator Joe Biden) (arguing in favor of the bill’s adoption during debate, concluding that “[a] vote for this bill is a vote to protect family support payments in bankruptcy. That is why I support this bill”).Show More Arguing that some debtors were filing for bankruptcy when they could afford to pay some or all of their debts, creditors successfully lobbied Congress to increase the evidence that debtors must produce when filing.¹¹ 11.SeeRobert H. Scott, III, Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: How the Credit Card Industry’s Perseverance Paid Off, 41 J. Econ. Issues 943, 945 (2007).Show More Many consumer advocates, including then-Professor Elizabeth Warren, strongly opposed BAPCPA, arguing that the reforms would unduly raise the cost of filing for the vast majority of debtors who truly deserved relief.¹² 12.See, e.g., Robert M. Lawless et al., Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors, 82 Am. Bankr. L.J. 349, 362 n.53 (2008).Show More

Now-President Joe Biden has endorsed bankruptcy legislation sponsored by now-Senator Elizabeth Warren.¹³ 13.Katie Glueck & Thomas Kaplan, Biden, Looking to Attract Progressives, Endorses Warren Bankruptcy Plan, N.Y. Times (May 22, 2020), https://www.nytimes.com/2020/03/14​/us/politics/biden-warren-bankruptcy.html [https://perma.cc/Y3V9-YN9Y].Show More With respect to making bankruptcy more accessible,¹⁴ 14.We express no judgment on other aspects of the reforms, such as making it easier to discharge student debt. Consumer Bankruptcy Reform Act of 2020, S. 4991, 116th Cong. § 101(b)(8) (2020).Show More these reforms do not go far enough. By repealing some of BAPCPA’s requirements, Senator Warren’s reforms may reduce the current cost of filing,¹⁵ 15.Elizabeth Warren, Fixing Our Bankruptcy System to Give People a Second Chance, Warren Democrats (Jan. 7, 2020), https://elizabethwarren.com/plans/bankruptcy-reform [https://perma.cc/Q529-HMSB].Show More but even before 2005, filing under Chapter 7 still cost consumers around $1,200 (in 2020 dollars).¹⁶ 16.See Lupica, supra note 7, at 130 tbl.A-6 (reporting total direct costs of $866 in 2005 dollars). Adjusting for inflation, this is roughly $1,199 in 2020 dollars. CPI Inflation Calculator, supra note 7.Show More Warren’s reforms would also allow more debtors to finance their attorney’s fees.¹⁷ 17.Consumer Bankruptcy Reform Act of 2020, S. 4991, 116th Cong. § 101(b)(4) (2020); Warren, supra note 15.Show More Yet that reform still leaves debtors spending significant sums just to prove an inability to pay their creditors and impedes bankruptcy’s fresh start by immediately saddling individuals emerging from bankruptcy with debt.

The complex forms and schedules required of debtors filing for bankruptcy stand in sharp contrast to the simple notice-filing standards available to creditors, who can file debt collection suits with just “a short and plain statement of the claim.”¹⁸ 18.See, e.g., Fed. R. Civ. P. 8. Even a plausibility standard requires only that the complaint allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).Show More Of the “eight million debt claims . . . filed [every year,] . . . six million . . . turn into default judgments,”¹⁹ 19.See, e.g., Yonathan A. Arbel, Adminization: Gatekeeping Consumer Contracts, 71 Vand. L. Rev. 121, 123 (2018).Show More meaning that the plaintiff will never have to produce any evidence.

By going all the way back to the Founding era, one can find an insolvent debtor’s action that matched the simplicity of modern notice filing—the poor debtor’s oath. “Debt was an inescapable fact of life in early America . . . [that] cut across regional, class, and occupational lines. Whether one was an Atlantic merchant or a rural shopkeeper, a tidewater planter or a backwoods farmer, debt was an integral part of daily life.”²⁰ 20.Bruce H. Mann, Republic of Debtors: Bankruptcy in the Age of American Independence 3 (2002).Show More The United States lacked a lasting federal bankruptcy law until the end of the nineteenth century,²¹ 21.Prior to 1898, Congress enacted three bankruptcy acts that together lasted less than twenty years. Congress repealed the Bankruptcy Act of 1800 in 1803, Act of Dec. 19, 1803, ch. 6, 2 Stat. 248, the Bankruptcy Act of 1841 in 1843, Act of Mar. 3, 1843, ch. 82, 5 Stat. 614, and the Bankruptcy Act of 1867 in 1878, Act of June 7, 1878, ch. 160, 20 Stat. 99. For a history of bankruptcy in the United States, see generally David A. Skeel, Jr., Debt’s Dominion: A History of Bankruptcy Law in America (2001) and Charles Jordan Tabb, The History of Bankruptcy Laws in the United States, 3 Am. Bankr. Inst. L. Rev. 5 (1995).Show More and many Founding-era Americans found themselves in debtor’s prison.²² 22.See infra notes 52–55 and accompanying text.Show More The poor debtor’s oath was an early reform that freed many debtors from this prison. In contrast to the numerous documents that a modern bankrupt debtor must submit, a federal version of this oath fit into just a few lines: “You solemnly swear (or affirm) that you have not estate, real or personal, nor is any to your knowledge holden in trust for you to the amount or value of twenty dollars, nor sufficient to pay the debt for which you are imprisoned.”²³ 23.Act of May 5, 1792, ch. 29, § 2, 1 Stat. 265, 266. For other versions of the poor debtor’s oath, see infra note 64 and accompanying text.Show More

Legal historian Bruce Mann suggests that the fact that the poor debtor’s oath was not part of a bankruptcy system explains the oath’s simplicity.

Insolvency and bankruptcy process create procedures for determining creditors’ claims against a debtor and for distributing the debtor’s property among his or her creditors in proportion to their claims. Poor debtor’s oaths offered neither, nor could they when they applied only to debtors with too little property to be worth distributing.²⁴ 24.Mann, supra note 20, at 51.Show More

Although modern bankruptcy law has procedures for determining creditors’ claims and distributing the debtor’s property, these procedures are not used in around 95% of consumer Chapter 7 cases because there are no assets to distribute.²⁵ 25.See infra Table 1.Show More Well less than 2% of these cases distribute more than $5,000 to unsecured creditors.²⁶ 26.See infra notes 129–33 and accompanying text.Show More The Supreme Court of the United States understated matters when it said that the fresh start is bankruptcy’s “principal purpose.”²⁷ 27.See Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007).Show More In the overwhelming majority of consumer bankruptcies, the fresh start is bankruptcy’s sole purpose.²⁸ 28.Tom Jackson recognized this point when he noted that “[t]he fresh-start policy is thus substantively unrelated to the creditor-oriented distributional rules that give bankruptcy law its general shape and complexity.” Jackson, supra note 2, at 1396.Show More

Bankruptcy’s numerous schedules and other required documents could still play a useful role if they are needed to determine whether a debtor deserves a fresh start. However, because nearly all consumers who file under Chapter 7 receive the same relief—a discharge of debt without forfeiting any assets—a court does not need full disclosure of the specifics of a debtor’s financial condition. The court only needs to know that the debtor’s financial condition is bad enough to qualify for a Chapter 7 discharge without any distribution to unsecured creditors. For many debtors, this purpose can be achieved with a modern version of the poor debtor’s oath. One possible version of this oath based on the current law’s substantive rules would read, “After any exempt property is excluded and administrative expenses are paid, no funds will be available to distribute to unsecured creditors, and my household income is below [median income].”²⁹ 29.For a longer discussion of the possible text of this oath, see infra Section III.D.Show More Little more is actually needed from most debtors beyond their identifying information; creditors could learn of the debtor’s filing from the credit bureaus such as Equifax, Experian, and TransUnion.³⁰ 30.See infra Section IV.A. Our proposal is similar to Tom Jackson’s suggestion that the fresh start could be tied to a public declaration of insolvency. See Jackson, supra note 2, at 1396 n.8. (“For example, the law might grant discharge through a system of public notice whereby certain assets (such as future wages) would be freed from the claims of existing creditors. The mechanism of public notice would inform creditors of the debtor’s election.”).Show More

Although we call for a modern version of the poor debtor’s oath, we do not envision restricting the oath to the truly destitute. During her tenure as a law professor, Senator Warren and her colleagues persuasively argued that most bankrupt debtors are drawn from the “middle class,”³¹ 31.See, e.g., Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, The Fragile Middle Class: Americans in Debt 2–3 (2000).Show More and in this paper, we demonstrate that the overwhelming majority of bankrupt debtors could rightfully take the above oath. As a result, we will primarily use the less common label for a poor debtor’s oath—an insolvent debtor’s oath.³² 32.For others using this phrase, see, for example, Robert A. Feer, Imprisonment for Debt in Massachusetts before 1800, 48 Miss. Valley Hist. Rev. 252, 259 (1961) and Walter H. Moses, Enforcement of Judgments Against Hidden Assets, 1951 U. Ill. L.F. 73, 79.Show More

That so many debtors can rightfully take the oath is partly due to bankruptcy’s current substantive rules. By definition, half of all households earn less than the median income, which makes them automatically pass bankruptcy’s income-based means test,³³ 33.See infra note 125 and accompanying text.Show More and many states provide exemptions that allow debtors to protect substantial wealth in bankruptcy. For example, twenty states allow debtors to exempt at least $100,000 in home equity,³⁴ 34.See infra note 104 and accompanying text.Show More and seven states (and the District of Columbia) have homestead exemptions with no dollar limit.³⁵ 35.See infra notes 101–03 and accompanying text.Show More We do not try to justify or reform these substantive rules. Rather, we argue that, given these substantive rules, bankruptcy should use very different procedures.

During the Founding era, an insolvent debtor’s oath shifted the burden of proof to the creditor to show that the debtor actually had assets.³⁶ 36.See Feer, supra note 32, at 255 (“The creditors were to be notified of the oath, and if they did not prove within fifty days that it was false, the prisoner was to be freed unless his creditors agreed to pay his weekly board charges.”).Show More However, a modern version could instead serve the same role that notice pleading serves in consumer debt collection—delaying the time when moving parties must present evidence and excusing presentation when their opponents concede or do nothing. Although the plaintiff retains the burden of proof in consumer debt collection, notice pleading shifts some burden to the defendant, who must challenge the complaint and force the plaintiff to provide evidence. If the defendant does nothing, the plaintiff will win a judgment by default. Similarly, creditors or their trustees could challenge an insolvent debtor’s oath and thereby force the debtor to complete the extensive schedules required by existing law. If such challenges are sufficiently costly, creditors will not challenge an oath unless there is a reasonably high probability that the oath was falsely taken. If an oath goes unchallenged, the debtor will receive a discharge by default.³⁷ 37.As is true under current law, courts could revoke a discharge if it is found to have been obtained by fraud or if a subsequent audit by the U.S. Trustee suggests revocation is appropriate. See 11 U.S.C. § 727(d); infra notes 165–69 and accompanying text.Show More

Lawsuits and other efforts to pursue a defaulting debtor cost money. Therefore, creditors and debt collectors have developed tools to predict whether debtors are likely to have sufficient assets or income to satisfy their judgments.³⁸ 38.See infra Section III.B.Show More We show that these same tools could be used to identify false oaths with a high degree of accuracy.³⁹ 39.See infra Section III.BShow More

By discouraging high-asset debtors from falsely taking an insolvent debtor’s oath, the law could reduce the incentive for creditors and trustees to challenge oaths and thereby lessen the administrative burden on those debtors who truly qualify for relief. In the Founding era, this was done by threatening severe punishment for perjury. This threat remains today in the form of bankruptcy fraud. Over time, however, consumers may learn that such a threat is largely empty. In our current system, debtors who make a material misstatement on their bankruptcy petition face more risk of being struck by lightning than being convicted of bankruptcy fraud.⁴⁰ 40.See infra notes 202–06 and accompanying text.Show More

Sharply limiting asset exemptions would more effectively deter wealthy debtors from falsely taking an insolvent debtor’s oath. Such a punishment is unlikely to harm debtors who rightfully take an oath because most debtors have assets that are far below currently available exemptions.⁴¹ 41.See infra Table 2 and accompanying text.Show More Homestead exemptions can be quite generous. However, over the last decade, roughly 80% of Chapter 7 debtors reported no home equity at all,⁴² 42.See Nathaniel Pattison & Richard M. Hynes, Asset Exemptions and Consumer Bankruptcies: Evidence from Individual Filings, 63 J.L. & Econ. 557, 569 tbl.2 (2020).Show More making the size of the homestead exemption available to them irrelevant.

Part I explores the debtor-creditor law of the Founding era. Although this law was much less generous than modern law, it did provide a very simple way for debtors to declare their inability to pay—the insolvent debtor’s oath. Part II describes a modern bankruptcy law that offers consumers very generous relief but requires complex paperwork and is unaffordable for many in financial distress. Part III proposes a new and greatly simplified bankruptcy procedure that would allow some debtors to take an updated version of the insolvent debtor’s oath in lieu of completing the complicated forms and schedules required by current law. The potential benefits are enormous. Because so many consumers file, the population of bankrupt consumers spends more than one billion each year on Chapter 7 filing costs alone,⁴³ 43.See infra notes 128–30 and accompanying text.Show More and the indirect costs of the paperwork may be even larger. Some insolvent debtors are too broke to file; they either forego bankruptcy protection altogether or file under a different chapter that allows them to pay their attorneys over time but rarely discharges their debts.⁴⁴ 44.See infra Section II.B.Show More Our proposal offers something for supporters of means testing as well. Procedures that require the production of costly information are easier to justify if they are restricted to the small number of debtors who are likely to have significant assets or income. Part IV addresses likely criticisms of our proposal, and Part V concludes.

1. See Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (internal quotation marks and citations omitted). ↑
2. Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 Harv. L. Rev. 1393, 1405–18 (1985). ↑
3. Id. at 1418–24. ↑
4.  Id. at 1420–24. For qualifications to this argument, see Richard M. Hynes, Non-Procrustean Bankruptcy, 2004 Univ. Ill. L. Rev. 301, 321–26. ↑
5. For example, in the Central District of California Bankruptcy Courts, at least twenty-seven forms are required to be submitted to the court by Chapter 7 debtors. U.S. Bankr. Ct. for the Cent. Dist. of Cal., Chapter 7 Petition Package (Individual Debtors), 3–6 (Dec. 2020), https://www.cacb.uscourts.gov/sites/cacb/files/documents/forms/Ch7%20IndividualPetitionPackage.pdf [https://perma.cc/JHR2-HMMG]. ↑
6. Just 6.5% of Chapter 7 debtors file pro se. See infra note 158 and accompanying text. ↑
7. See Lois R. Lupica, The Consumer Bankruptcy Fee Study: Final Report, Am. Bankr. Inst. 130, tbl.A-6 (Dec. 2011) (listing total direct access costs (attorney’s fees plus filing fees) for no-asset Chapter 7 cases of $1,304 in 2005 dollars). The Bureau of Labor Statistics Inflation calculator converts $1,304 in May of 2005 into $1,806 in May of 2021. CPI Inflation Calculator, U.S. Bureau of Lab. Stat., https://www.bls.gov/data/inflation_calculator.htm [https://perma.cc/33FK-GRDN] (last visited Apr. 3, 2022). ↑
8. See, e.g., Ronald J. Mann & Katherine Porter, Saving Up for Bankruptcy, 98 Geo. L.J. 289, 292 (2010). Then-Professor Porter has since been elected to the U.S. House of Representatives. ↑
9. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codified in scattered sections of 11 U.S.C.). ↑
10. 151 Cong. Rec. 3, 4351 (2005) (statement of then-Senator Joe Biden) (arguing in favor of the bill’s adoption during debate, concluding that “[a] vote for this bill is a vote to protect family support payments in bankruptcy. That is why I support this bill”). ↑
11. See Robert H. Scott, III, Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: How the Credit Card Industry’s Perseverance Paid Off, 41 J. Econ. Issues 943, 945 (2007). ↑
12. See, e.g., Robert M. Lawless et al., Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors, 82 Am. Bankr. L.J. 349, 362 n.53 (2008). ↑
13. Katie Glueck & Thomas Kaplan, Biden, Looking to Attract Progressives, Endorses Warren Bankruptcy Plan, N.Y. Times (May 22, 2020), https://www.nytimes.com/2020/03/14​/us/politics/biden-warren-bankruptcy.html [https://perma.cc/Y3V9-YN9Y]. ↑
14. We express no judgment on other aspects of the reforms, such as making it easier to discharge student debt. Consumer Bankruptcy Reform Act of 2020, S. 4991, 116th Cong. § 101(b)(8) (2020). ↑
15. Elizabeth Warren, Fixing Our Bankruptcy System to Give People a Second Chance, Warren Democrats (Jan. 7, 2020), https://elizabethwarren.com/plans/bankruptcy-reform [https://perma.cc/Q529-HMSB]. ↑
16. See Lupica, supra note 7, at 130 tbl.A-6 (reporting total direct costs of $866 in 2005 dollars). Adjusting for inflation, this is roughly $1,199 in 2020 dollars. CPI Inflation Calculator, supra note 7. ↑
17. Consumer Bankruptcy Reform Act of 2020, S. 4991, 116th Cong. § 101(b)(4) (2020); Warren, supra note 15. ↑
18. See, e.g., Fed. R. Civ. P. 8. Even a plausibility standard requires only that the complaint allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). ↑
19. See, e.g., Yonathan A. Arbel, Adminization: Gatekeeping Consumer Contracts, 71 Vand. L. Rev. 121, 123 (2018). ↑
20. Bruce H. Mann, Republic of Debtors: Bankruptcy in the Age of American Independence 3 (2002). ↑
21. Prior to 1898, Congress enacted three bankruptcy acts that together lasted less than twenty years. Congress repealed the Bankruptcy Act of 1800 in 1803, Act of Dec. 19, 1803, ch. 6, 2 Stat. 248, the Bankruptcy Act of 1841 in 1843, Act of Mar. 3, 1843, ch. 82, 5 Stat. 614, and the Bankruptcy Act of 1867 in 1878, Act of June 7, 1878, ch. 160, 20 Stat. 99. For a history of bankruptcy in the United States, see generally David A. Skeel, Jr., Debt’s Dominion: A History of Bankruptcy Law in America (2001) and Charles Jordan Tabb, The History of Bankruptcy Laws in the United States, 3 Am. Bankr. Inst. L. Rev. 5 (1995). ↑
22. See infra notes 52–55 and accompanying text. ↑
23. Act of May 5, 1792, ch. 29, § 2, 1 Stat. 265, 266. For other versions of the poor debtor’s oath, see infra note 64 and accompanying text. ↑
24. Mann, supra note 20, at 51. ↑
25. See infra Table 1. ↑
26. See infra notes 129–33 and accompanying text. ↑
27. See Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007). ↑
28. Tom Jackson recognized this point when he noted that “[t]he fresh-start policy is thus substantively unrelated to the creditor-oriented distributional rules that give bankruptcy law its general shape and complexity.” Jackson, supra note 2, at 1396. ↑
29. For a longer discussion of the possible text of this oath, see infra Section III.D. ↑
30. See infra Section IV.A. Our proposal is similar to Tom Jackson’s suggestion that the fresh start could be tied to a public declaration of insolvency. See Jackson, supra note 2, at 1396 n.8. (“For example, the law might grant discharge through a system of public notice whereby certain assets (such as future wages) would be freed from the claims of existing creditors. The mechanism of public notice would inform creditors of the debtor’s election.”). ↑
31. See, e.g., Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, The Fragile Middle Class: Americans in Debt 2–3 (2000). ↑
32. For others using this phrase, see, for example, Robert A. Feer, Imprisonment for Debt in Massachusetts before 1800, 48 Miss. Valley Hist. Rev. 252, 259 (1961) and Walter H. Moses, Enforcement of Judgments Against Hidden Assets, 1951 U. Ill. L.F. 73, 79. ↑
33. See infra note 125 and accompanying text. ↑
34. See infra note 104 and accompanying text. ↑
35. See infra notes 101–03 and accompanying text. ↑
36. See Feer, supra note 32, at 255 (“The creditors were to be notified of the oath, and if they did not prove within fifty days that it was false, the prisoner was to be freed unless his creditors agreed to pay his weekly board charges.”). ↑
37. As is true under current law, courts could revoke a discharge if it is found to have been obtained by fraud or if a subsequent audit by the U.S. Trustee suggests revocation is appropriate. See 11 U.S.C. § 727(d); infra notes 165–69 and accompanying text. ↑
38. See infra Section III.B. ↑
39. See infra Section III.B ↑
40. See infra notes 202–06 and accompanying text. ↑
41. See infra Table 2 and accompanying text. ↑
42.  See Nathaniel Pattison & Richard M. Hynes, Asset Exemptions and Consumer Bankruptcies: Evidence from Individual Filings, 63 J.L. & Econ. 557, 569 tbl.2 (2020). ↑
43. See infra notes 128–30 and accompanying text. ↑

44. See infra Section II.B. ↑

The post A Modern Poor Debtor’s Oath first appeared on Virginia Law Review.

Introduction

In 2018, Facebook Chairman and CEO Mark Zuckerberg faced senators on national television regarding conduct that prompted the Federal Trade Commission (FTC) to seek its largest ever fine.¹ 1.Cecilia Kang, A Facebook Settlement with the F.T.C. Could Run into the Billions, N.Y. Times, Feb. 15, 2019, at B6.Show More The main issue was not what Facebook did directly to its users. Instead, the hearing focused on the social network’s failure to restrain third parties. Most notably, the political consulting firm Cambridge Analytica had accessed millions of users’ accounts in an effort to support election candidates.² 2.Katy Steinmetz, Mark Zuckerberg Survived Congress. Now Facebook Has to Survive the FTC, Time (Apr. 13, 2018, 12:42 PM), https://time.com/5237900/facebook-ftc-privacy-data-cambridge-analytica/ [https://perma.cc/4SJJ-YHP9].Show More Before Zuckerberg’s Senate testimony, the FTC had already sued Google and Amazon to force them to monitor third parties for privacy violations and in-app video game purchases by children that sometimes reached in the thousands of dollars.³ 3.See FTC v. Amazon.com, Inc., No. C14-1038-JCC, 2016 WL 10654030, at *8 (W.D. Wash. July 22, 2016) (finding Amazon accountable for in-app charges); Agreement Containing Consent Order at 5, Google Inc., No. 102-3136, (F.T.C. Mar. 30, 2011), https://www.ftc.gov/sites/default/files/documents/cases/2011/03/110330googlebuzzagreeorder.pdf [https://perma.cc/7R6W-5VNP] (ordering Google to require “service providers by contract to implement and maintain appropriate privacy protections”).Show More In other words, the FTC is requiring large technology companies to act in ways traditionally associated with public regulators—by policing other businesses for legal violations.

Over time, policy makers have enlisted a large array of private actors in their quest for optimal regulatory design.⁴ 4.See, e.g., Kenneth A. Bamberger, Regulation as Delegation: Private Firms, Decisionmaking, and Accountability in the Administrative State, 56 Duke L.J. 377, 453 (2006) (conceiving of regulators’ decisions to let regulated entities fill in vague mandates as delegation); Cary Coglianese & David Lazer, Management-Based Regulation: Prescribing Private Management to Achieve Public Goals, 37 Law & Soc’y Rev. 691, 691, 726 (2003) (describing the “intertwining of the public and private sectors”); Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543, 549–56 (2000) (surveying the great diversity of private governance actors); Gillian E. Metzger, Privatization as Delegation, 103 Colum. L. Rev. 1367, 1369 (2003) (conceiving of privatization of health care, welfare provision, prisons, and public education as delegation); Martha Minow, Public and Private Partnerships: Accounting for the New Religion, 116 Harv. L. Rev. 1229, 1237–42 (2003) (exploring implications of privatization for public values).Show More Scholarship on the private role in public governance has focused on third-party enforcers whose main function is to provide a support service. Those enforcers include self-regulatory organizations formed by industry and independent auditors mandated by regulators.⁵ 5.See Bamberger, supra note 4, at 452–58; Freeman, supra note 4, at 635, 644. As another example, in policing stock exchanges, the Securities and Exchange Commission (SEC) relies heavily on self-regulatory organizations to monitor wrongdoing and propose rules. Jennifer M. Pacella, If the Shoe of the SEC Doesn’t Fit: Self-Regulatory Organizations and Absolute Immunity, 58 Wayne L. Rev. 201, 202 (2012). Courts also order third-party monitors. See Veronica Root, The Monitor-“Client” Relationship, 100 Va. L. Rev. 523, 531–33 (2014).Show More The corporate law strand of this enforcement literature emphasizes a network of “gatekeepers,” such as lawyers, accountants, and certifiers who guard against compliance and governance failures.⁶ 6.See John C. Coffee, Jr., Gatekeepers: The Professions and Corporate Governance 2–3 (2006) (chronicling the evolution of auditors, attorneys, securities analysts, and credit-rating agencies in guarding against corporate governance failures); Assaf Hamdani, Gatekeeper Liability, 77 S. Cal. L. Rev. 53, 117–18 (2003) (discussing the need to expand gatekeeper liability in the wake of the Enron fraud scandal); Reinier H. Kraakman, Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy, 2 J.L. Econ. & Org. 53, 54 (1986) (contrasting whistleblowers with gatekeepers, who are third parties that can “prevent misconduct by withholding support”).Show More For instance, before releasing annual reports, a publicly traded company must obtain the signoff of a certified accountant.⁷ 7.15 U.S.C. § 78m(a) (2018) (“Every issuer of a security . . . shall file with the Commission . . . such annual reports (and such copies thereof), certified if required by the rules and regulations of the Commission by independent public accountants . . . .”).Show More In these more familiar private enforcement contexts, the private “cops on the beat”⁸ 8.Kraakman, supra note 6, at 53 n.1 (attributing to Jeremy Bentham the “cop-on-the-beat” metaphor and using it to describe gatekeepers).Show More are ancillary actors rather than core market participants.⁹ 9.The literature has also extensively analyzed self-regulation as part of a broader new governance that arose in recent decades. Administrative agencies now pursue collaborative and responsive models of public governance designed to encourage the business sector to self-regulate. See, e.g., Ian Ayres & John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate 3 (1992); Jody Freeman, Collaborative Governance in the Administrative State, 45 UCLA L. Rev. 1, 6–7 (1997). Additionally, large businesses have dramatically grown their compliance departments to police the firm from within. See, e.g., Sean J. Griffith, Corporate Governance in an Era of Compliance, 57 Wm. & Mary L. Rev. 2075, 2077 (2016); Kimberly D. Krawiec, Organizational Misconduct: Beyond the Principal-Agent Model, 32 Fla. St. U. L. Rev. 571, 572 (2005); Veronica Root, Coordinating Compliance Incentives, 102 Cornell L. Rev. 1003, 1004 (2017). This important and nascent literature on corporate compliance has remained focused on the firm’s role in overseeing internal operations, or on traditional gatekeepers doing so.Show More

This Article demonstrates how policymakers have enlisted a new class of more powerful third-party enforcers: the businesses at the heart of the economy. The ten largest American companies by valuation operate in information technology, finance, oil, and pharmaceuticals.¹⁰ 10.Fortune 500 List, Fortune (last visited Oct. 18, 2019), http://fortune.com/fortune­500/list/filtered?sortBy=mktval (identifying the ten most valuable American companies as Apple, Alphabet, Microsoft, Amazon, Berkshire Hathaway, Facebook, JPMorgan Chase, Johnson & Johnson, Exxon Mobil, and Bank of America). One of these companies, Berkshire Hathaway, is a conglomerate operating in diverse industries, including finance, while Johnson & Johnson sells pharmaceuticals in addition to consumer goods. Berkshire Hathaway, Fortune (updated Mar. 29, 2018), https://fortune.com/fortune500/2018/berkshire-hathaway/; Johnson & Johnson, Fortune (updated Mar. 29, 2018), https://fortune.com/fortune500/2018/johnson-johnson/.Show More A regulator has put leading firms in each of these industries on notice about their responsibilities for third-party oversight.¹¹ 11.See infra Part II.Show More In addition to the FTC, the Environmental Protection Agency (EPA)—along with the Department of Justice (DOJ)—requires BP Oil and other energy companies to audit offshore oil platform operators for environmental compliance.¹² 12.Consent Decree Among Defendant BP Exploration & Production Inc., the United States of America, and the States of Alabama, Florida, Louisiana, Mississippi, and Texas at 32–33, In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mex., on Apr. 20, 2010, No. 10-MDL-2179 (E.D. La. Oct. 5, 2015), ECF No. 15436-1 [hereinafter BP Consent Decree].Show More The Food and Drug Administration (FDA) expects Pfizer and other drug companies to ensure suppliers and third-party labs follow the agency’s health and safety guidelines.¹³ 13.21 C.F.R. § 211.22(a) (2018) (explaining best practices for quality control of contractors); FDA Warning Letter from Cheryl A. Bigham, Dist. Dir., Kan. City Dist., Office of Regulatory Affairs, to Thomas Handel, President & Gen. Manager, Meridian Med. Techs., Inc., a Pfizer Co. (Sept. 5, 2017), https://www.fda.gov/iceci/enforcementactions/warningletters/2017/ucm­574981.htm [https://perma.cc/JMX9-V7VL].Show More The Consumer Financial Protection Bureau (CFPB) orders financial institutions, such as American Express, to monitor independent debt collectors and call centers for deceptive practices.¹⁴ 14.Am. Express Centurion Bank, CFPB No. 2012-CFPB-0002 (Oct. 1, 2012) (joint consent order).Show More

The widespread conscription of businesses as enforcers—also called “enforcer-firms” below—shares characteristics with, but differs meaningfully from, prior iterations of third-party regulation. For instance, the FTC’s original administrative order required Facebook to hire a third-party auditor—an example of the old gatekeeper model—to certify Facebook’s compliance.¹⁵ 15.Facebook, Inc., FTC File No. 0923184, No. C-4365, at 3–4 (F.T.C. July 27, 2012) (decision and order).Show More In that arrangement, refusing to sign off on Facebook’s biennial reports to the FTC constituted the auditor’s main sanction.¹⁶ 16.See id. at 6.Show More Facebook could, however, respond to that sanction by bringing its business elsewhere.¹⁷ 17.The consent order does not prevent such a response. See id.Show More That ability to retaliate weakens traditional gatekeepers’ power and independence.¹⁸ 18.See Joel S. Demski, Corporate Conflicts of Interest, 17 J. Econ. Persp. 51, 57 (2003).Show More

In contrast, the enforcer-firm is usually the client—or at least a crucial business partner—of the third parties it regulates. Its main sanction is to cease doing business with those third parties, which can prove devastating.¹⁹ 19.See infra Section IV.A.Show More The client relationship that weakens traditional gatekeepers thus strengthens the enforcer-firm. In short, policymakers have begun relying on third-party enforcement by the real gatekeepers of the economy: the firms who control access to core product markets.²⁰ 20.A diversified firm may play both a new and traditional gatekeeper role. For instance, by allowing a company to serve as both a commercial bank and investment bank, the law enables large financial institutions to operate as both traditional gatekeepers—overseeing their clients by underwriting securities, prompted by liability avoidance under the Securities Act of 1933—and as new gatekeepers, being the clients who hire third-party businesses. See infraSection II.A; Kraakman, supranote 6, at 82–83.Show More

In highlighting an overlooked enforcement model, this Article builds on the literature scrutinizing the increasingly narrow divide between private businesses and the administrative state.²¹ 21.See supra note 4 and accompanying text.Show More Although that scholarship has yet to examine the enforcer-firm in any sustained manner,²² 22.To the extent scholars have discussed mandated third-party governance it has been in passing or in narrower contexts such as in criminal or international law. See, e.g., Larry Catá Backer, Surveillance and Control: Privatizing and Nationalizing Corporate Monitoring After Sarbanes-Oxley, 2004 Mich. St. L. Rev. 327, 433–34 (2004) (referencing how the Bank Secrecy Act causes a larger number of businesses to become “part of the network of the state’s eyes and ears”); John Braithwaite, Responsive Regulation and Developing Economies, 34 World Dev. 884, 889–90 (2006) (exploring how domestic firms can serve as a means of reaching foreign actors); Stavros Gadinis & Colby Mangels, Collaborative Gatekeepers, 73 Wash. & Lee L. Rev. 797, 910–11 (2016) (focusing on money laundering); Itai Grinberg, The Battle over Taxing Offshore Accounts, 60 UCLA L. Rev. 304, 304 (2012) (referencing a “growing consensus that financial institutions should act as cross-border tax intermediaries”). For other ways that scholars have recognized that businesses regulate other firms, see infra Part I.Show More mandated third-party governance raises some similar accountability issues as previous generations of third-party enforcement. In particular, as a new area of quasi-regulatory activity unlikely to be overturned by judicial review, conscripted enforcement lacks transparency and traditional measures of public involvement, such as notice and comment rulemaking.²³ 23.See, e.g., Rachel E. Barkow, Overseeing Agency Enforcement, 84 Geo. Wash. L. Rev. 1129, 1130 (2016) (“Most aspects of agency enforcement policy generally escape judicial review.”); Freeman, supra note 4, at 647 (“Most self-regulatory programs lack the transparency and public involvement that characterize legislative rulemaking.”); Lesley K. McAllister, Regulation by Third-Party Verification, 53 B.C. L. Rev. 1, 3–4 (2012) (identifying accountability challenges with third-party enforcement models).Show More

However, if designed well, the enforcer-firm offers some hope for improving upon prior regulatory models’ accountability. Because enforcer-firms often sell directly to consumers, they may prove more responsive to public concerns when compared to traditional gatekeepers, which interact most closely with regulated entities.²⁴ 24.See, e.g., Coffee, supra note 6, at 15–18 (describing gatekeeper shortcomings).Show More And because the enforcer-firm is itself a prime target of public regulation, it would be easier for an administrative agency to oversee it than to add a whole new category of firms as required for oversight of traditional gatekeepers.²⁵ 25.See infra Section IV.B.Show More The conscription of businesses proved crucial in other administrative contexts, including the implementation of a personal income tax.²⁶ 26.Ajay K. Mehrotra, Making the Modern American Fiscal State: Law, Politics, and the Rise of Progressive Taxation, 1877–1929, at 282–83 (2013).Show More The enforcer-firm could, by analogy, enable the regulatory state to bring dispersed business actors into compliance.

None of this should be taken as an endorsement of the enforcer-firm, which is too new and understudied to yield strong normative conclusions. However, an openness to the upsides of the enforcer-firm responds to the critique that administrative law scholars have too often portrayed private actors as an intrusion into legitimacy, which prevents “imagining the means by which private actors might contribute to accountability.”²⁷ 27.Freeman, supra note 4, at 675. Numerous scholars have taken up this call in other contexts. See, e.g., Sarah E. Light, The Law of the Corporation as Environmental Law, 71 Stan. L. Rev. 137, 139–41 (2019) (calling for a holistic view of corporations’ role in promoting environmental goals).Show More

Mandated third-party governance also speaks to vibrant corporate law inquiries. Scholars have paid considerable attention to the duties of directors and officers, personal liability for corporate wrongdoing, and organizational structure.²⁸ 28.See generally Nicolai J. Foss et al., The Theory of the Firm, in 3 Encyclopedia of Law and Economics 631 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000); infra Part III.Show More Conscripted enforcement shapes each of these areas and pushes against depictions of the firm emphasizing its private nature. Those depictions are rooted in the influential metaphor—sometimes described as the most dominant theory of the firm—that the firm is a “nexus of contracts” among owners, managers, laborers, suppliers, and customers.²⁹ 29.See, e.g., Melvin A. Eisenberg, The Conception That the Corporation Is a Nexus of Contracts, and the Dual Nature of the Firm, 24 J. Corp. L. 819, 820 (1999); Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305, 310 (1976); Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 26 (2016).Show More The firm remains exceedingly private. But by directing businesses to write enforcement-oriented contract clauses and monitor external relationships for legal violations, as a descriptive matter the state is pushing the firm toward a larger public role.³⁰ 30.See infra Section III.A.Show More

That insight is relevant beyond theory and institutional design. In the highest legislative circles and corporate boardrooms, debates are unfolding about what duties corporations owe to society, with some taking particular aim at the idea that shareholders should come above all other stakeholders.³¹ 31.See Elizabeth Warren, Companies Shouldn’t Be Accountable Only to Shareholders, Wall St. J., Aug. 15, 2018, at A17; Larry Fink, Larry Fink’s 2018 Letter to CEOs: A Sense of Purpose, BlackRock, https://www.blackrock.com/corporate/investor-relations/2018-larry-fin­k-ceo-letter [https://perma.cc/P9X6-HN85] (last visited Jan. 13, 2020); Martin Lipton et al., It’s Time to Adopt the New Paradigm, Harv. L. Sch. F. Corp. Governance, https://corpgov.­law.harvard.edu/2019/02/11/its-time-to-adopt-the-new-paradigm [https://perma.cc/3XH9-SSRS] (last visited Jan. 13, 2020); Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans,’ Business Roundtable (Aug. 19, 2019), [https://perma.cc/9K2F-2HLG]. On shareholder primacy, see infra note 189 and accompanying text.Show More Conscripted enforcement marks a significant uptick in federal regulatory involvement in the firm by imposing more of an affirmative public duty to act.³² 32.See infra Section III.D.Show More Cast against the backdrop of the firm as public enforcer, calls for business leaders to do more for society appear less disconnected from reality than would be the case under a largely private conception of the firm.³³ 33.There is arguably a gap between rhetoric and reality. See Marcel Kahan & Edward Rock, Symbolic Corporate Governance Politics, 94 B.U. L. Rev. 1997, 2042 (2014).Show More

The Article is structured as follows. Part I provides an overview of the well-studied ways that private entities serve as enforcers. Part II offers four case studies of how regulators have implemented mandated enforcement of third parties in some of the largest U.S. industries: the FTC and technology, the CFPB and banking, the EPA and oil, and the FDA and pharmaceuticals. Part III examines how mandated enforcement alters the firm’s contracts, relationships, and governance. It also explores shifts in liability at the personal and entity level, which could influence organizational structure. Part IV concludes by considering implications for the effectiveness and accountability of the administrative state.

1. * Associate Professor of Law, Boston University; Affiliated Fellow, Yale Law School Information Society Project. For extremely valuable input, I am grateful to Hilary Allen, William Eskridge, George Geis, Anna Gelpern, Jonathan Lipson, Nicholas Parrillo, Carla Reyes, Kevin Schwartz, Andrew Tuch, Michael Vandenbergh, David Walker, and Jay Wexler, and to workshop participants at Boston University, the University of Pennsylvania, the University of Virginia, and Yale ISP. Special thanks to Eric Talley for unusually formative early comments. Jacob Axelrod, Sam Burgess, Omeed Firoozgan, Christopher Hamilton, Allison Mcsorley, Tyler Stites, Kelsey Sullivan, and Gavin Tullis provided excellent research assistance. The Virginia Law Review editors, and particularly Mark Russell, were tremendously thorough and helpful throughout. ↑
2. Cecilia Kang, A Facebook Settlement with the F.T.C. Could Run into the Billions, N.Y. Times, Feb. 15, 2019, at B6. ↑
3. Katy Steinmetz, Mark Zuckerberg Survived Congress. Now Facebook Has to Survive the FTC, Time (Apr. 13, 2018, 12:42 PM), https://time.com/5237900/facebook-ftc-privacy-data-cambridge-analytica/ [https://perma.cc/4SJJ-YHP9]. ↑
4. See FTC v. Amazon.com, Inc., No. C14-1038-JCC, 2016 WL 10654030, at *8 (W.D. Wash. July 22, 2016) (finding Amazon accountable for in-app charges); Agreement Containing Consent Order at 5, Google Inc., No. 102-3136, (F.T.C. Mar. 30, 2011), https://www.ftc.gov/sites/default/files/documents/cases/2011/03/110330googlebuzzagreeorder.pdf [https://perma.cc/7R6W-5VNP] (ordering Google to require “service providers by contract to implement and maintain appropriate privacy protections”). ↑
5. See, e.g., Kenneth A. Bamberger, Regulation as Delegation: Private Firms, Decisionmaking, and Accountability in the Administrative State, 56 Duke L.J. 377, 453 (2006) (conceiving of regulators’ decisions to let regulated entities fill in vague mandates as delegation); Cary Coglianese & David Lazer, Management-Based Regulation: Prescribing Private Management to Achieve Public Goals, 37 Law & Soc’y Rev. 691, 691, 726 (2003) (describing the “intertwining of the public and private sectors”); Jody Freeman, The Private Role in Public Governance, 75 N.Y.U. L. Rev. 543, 549–56 (2000) (surveying the great diversity of private governance actors); Gillian E. Metzger, Privatization as Delegation, 103 Colum. L. Rev. 1367, 1369 (2003) (conceiving of privatization of health care, welfare provision, prisons, and public education as delegation); Martha Minow, Public and Private Partnerships: Accounting for the New Religion, 116 Harv. L. Rev. 1229, 1237–42 (2003) (exploring implications of privatization for public values). ↑
6. See Bamberger, supra note 4, at 452–58; Freeman, supra note 4, at 635, 644. As another example, in policing stock exchanges, the Securities and Exchange Commission (SEC) relies heavily on self-regulatory organizations to monitor wrongdoing and propose rules. Jennifer M. Pacella, If the Shoe of the SEC Doesn’t Fit: Self-Regulatory Organizations and Absolute Immunity, 58 Wayne L. Rev. 201, 202 (2012). Courts also order third-party monitors. See Veronica Root, The Monitor-“Client” Relationship, 100 Va. L. Rev. 523, 531–33 (2014). ↑
7. See John C. Coffee, Jr., Gatekeepers: The Professions and Corporate Governance 2–3 (2006) (chronicling the evolution of auditors, attorneys, securities analysts, and credit-rating agencies in guarding against corporate governance failures); Assaf Hamdani, Gatekeeper Liability, 77 S. Cal. L. Rev. 53, 117–18 (2003) (discussing the need to expand gatekeeper liability in the wake of the Enron fraud scandal); Reinier H. Kraakman, Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy, 2 J.L. Econ. & Org. 53, 54 (1986) (contrasting whistleblowers with gatekeepers, who are third parties that can “prevent misconduct by withholding support”). ↑
8. 15 U.S.C. § 78m(a) (2018) (“Every issuer of a security . . . shall file with the Commission . . . such annual reports (and such copies thereof), certified if required by the rules and regulations of the Commission by independent public accountants . . . .”). ↑
9. Kraakman, supra note 6, at 53 n.1 (attributing to Jeremy Bentham the “cop-on-the-beat” metaphor and using it to describe gatekeepers). ↑
10. The literature has also extensively analyzed self-regulation as part of a broader new governance that arose in recent decades. Administrative agencies now pursue collaborative and responsive models of public governance designed to encourage the business sector to self-regulate. See, e.g., Ian Ayres & John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate 3 (1992); Jody Freeman, Collaborative Governance in the Administrative State, 45 UCLA L. Rev. 1, 6–7 (1997). Additionally, large businesses have dramatically grown their compliance departments to police the firm from within. See, e.g., Sean J. Griffith, Corporate Governance in an Era of Compliance, 57 Wm. & Mary L. Rev. 2075, 2077 (2016); Kimberly D. Krawiec, Organizational Misconduct: Beyond the Principal-Agent Model, 32 Fla. St. U. L. Rev. 571, 572 (2005); Veronica Root, Coordinating Compliance Incentives, 102 Cornell L. Rev. 1003, 1004 (2017). This important and nascent literature on corporate compliance has remained focused on the firm’s role in overseeing internal operations, or on traditional gatekeepers doing so. ↑
11. Fortune 500 List, Fortune (last visited Oct. 18, 2019), http://fortune.com/fortune­500/list/filtered?sortBy=mktval (identifying the ten most valuable American companies as Apple, Alphabet, Microsoft, Amazon, Berkshire Hathaway, Facebook, JPMorgan Chase, Johnson & Johnson, Exxon Mobil, and Bank of America). One of these companies, Berkshire Hathaway, is a conglomerate operating in diverse industries, including finance, while Johnson & Johnson sells pharmaceuticals in addition to consumer goods. Berkshire Hathaway, Fortune (updated Mar. 29, 2018), https://fortune.com/fortune500/2018/berkshire-hathaway/; Johnson & Johnson, Fortune (updated Mar. 29, 2018), https://fortune.com/fortune500/2018/johnson-johnson/. ↑
12. See infra Part II. ↑
13. Consent Decree Among Defendant BP Exploration & Production Inc., the United States of America, and the States of Alabama, Florida, Louisiana, Mississippi, and Texas at 32–33, In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mex., on Apr. 20, 2010, No. 10-MDL-2179 (E.D. La. Oct. 5, 2015), ECF No. 15436-1 [hereinafter BP Consent Decree]. ↑
14. 21 C.F.R. § 211.22(a) (2018) (explaining best practices for quality control of contractors); FDA Warning Letter from Cheryl A. Bigham, Dist. Dir., Kan. City Dist., Office of Regulatory Affairs, to Thomas Handel, President & Gen. Manager, Meridian Med. Techs., Inc., a Pfizer Co. (Sept. 5, 2017), https://www.fda.gov/iceci/enforcementactions/warningletters/2017/ucm­574981.htm [https://perma.cc/JMX9-V7VL]. ↑
15. Am. Express Centurion Bank, CFPB No. 2012-CFPB-0002 (Oct. 1, 2012) (joint consent order). ↑
16. Facebook, Inc., FTC File No. 0923184, No. C-4365, at 3–4 (F.T.C. July 27, 2012) (decision and order). ↑
17. See id. at 6. ↑
18. The consent order does not prevent such a response. See id. ↑
19. See Joel S. Demski, Corporate Conflicts of Interest, 17 J. Econ. Persp. 51, 57 (2003). ↑
20. See infra Section IV.A. ↑
21. A diversified firm may play both a new and traditional gatekeeper role. For instance, by allowing a company to serve as both a commercial bank and investment bank, the law enables large financial institutions to operate as both traditional gatekeepers—overseeing their clients by underwriting securities, prompted by liability avoidance under the Securities Act of 1933—and as new gatekeepers, being the clients who hire third-party businesses. See infra Section II.A; Kraakman, supra note 6, at 82–83. ↑
22. See supra note 4 and accompanying text. ↑
23. To the extent scholars have discussed mandated third-party governance it has been in passing or in narrower contexts such as in criminal or international law. See, e.g., Larry Catá Backer, Surveillance and Control: Privatizing and Nationalizing Corporate Monitoring After Sarbanes-Oxley, 2004 Mich. St. L. Rev. 327, 433–34 (2004) (referencing how the Bank Secrecy Act causes a larger number of businesses to become “part of the network of the state’s eyes and ears”); John Braithwaite, Responsive Regulation and Developing Economies, 34 World Dev. 884, 889–90 (2006) (exploring how domestic firms can serve as a means of reaching foreign actors); Stavros Gadinis & Colby Mangels, Collaborative Gatekeepers, 73 Wash. & Lee L. Rev. 797, 910–11 (2016) (focusing on money laundering); Itai Grinberg, The Battle over Taxing Offshore Accounts, 60 UCLA L. Rev. 304, 304 (2012) (referencing a “growing consensus that financial institutions should act as cross-border tax intermediaries”). For other ways that scholars have recognized that businesses regulate other firms, see infra Part I. ↑
24. See, e.g., Rachel E. Barkow, Overseeing Agency Enforcement, 84 Geo. Wash. L. Rev. 1129, 1130 (2016) (“Most aspects of agency enforcement policy generally escape judicial review.”); Freeman, supra note 4, at 647 (“Most self-regulatory programs lack the transparency and public involvement that characterize legislative rulemaking.”); Lesley K. McAllister, Regulation by Third-Party Verification, 53 B.C. L. Rev. 1, 3–4 (2012) (identifying accountability challenges with third-party enforcement models). ↑
25. See, e.g., Coffee, supra note 6, at 15–18 (describing gatekeeper shortcomings). ↑
26. See infra Section IV.B. ↑
27. Ajay K. Mehrotra, Making the Modern American Fiscal State: Law, Politics, and the Rise of Progressive Taxation, 1877–1929, at 282–83 (2013). ↑
28. Freeman, supra note 4, at 675. Numerous scholars have taken up this call in other contexts. See, e.g., Sarah E. Light, The Law of the Corporation as Environmental Law, 71 Stan. L. Rev. 137, 139–41 (2019) (calling for a holistic view of corporations’ role in promoting environmental goals). ↑
29. See generally Nicolai J. Foss et al., The Theory of the Firm, in 3 Encyclopedia of Law and Economics 631 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000); infra Part III. ↑
30. See, e.g., Melvin A. Eisenberg, The Conception That the Corporation Is a Nexus of Contracts, and the Dual Nature of the Firm, 24 J. Corp. L. 819, 820 (1999); Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305, 310 (1976); Steven L. Schwarcz, Misalignment: Corporate Risk-Taking and Public Duty, 92 Notre Dame L. Rev. 1, 26 (2016). ↑
31. See infra Section III.A. ↑
32. See Elizabeth Warren, Companies Shouldn’t Be Accountable Only to Shareholders, Wall St. J., Aug. 15, 2018, at A17; Larry Fink, Larry Fink’s 2018 Letter to CEOs: A Sense of Purpose, BlackRock, https://www.blackrock.com/corporate/investor-relations/2018-larry-fin­k-ceo-letter [https://perma.cc/P9X6-HN85] (last visited Jan. 13, 2020); Martin Lipton et al., It’s Time to Adopt the New Paradigm, Harv. L. Sch. F. Corp. Governance, https://corpgov.­law.harvard.edu/2019/02/11/its-time-to-adopt-the-new-paradigm [https://perma.cc/3XH9-SSRS] (last visited Jan. 13, 2020); Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans,’ Business Roundtable (Aug. 19, 2019), [https://perma.cc/9K2F-2HLG]. On shareholder primacy, see infra note 189 and accompanying text. ↑
33. See infra Section III.D. ↑
34. There is arguably a gap between rhetoric and reality. See Marcel Kahan & Edward Rock, Symbolic Corporate Governance Politics, 94 B.U. L. Rev. 1997, 2042 (2014). ↑

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