From the Company Town to the Innovation Zone: Frontiers of Public Policy, the State Action Doctrine, and the First Amendment

The first is what we might identify as a state association or cooperation standard (what Buchanan calls the “State Nexus Issue”).

Buchanan, supra note 30, at 346–47. See also Burton v. Wilmington Parking Auth., 365 U.S. 715, 725 (1961) (“[t]he State has so far insinuated itself into a position of interdependence with [a privately held restaurant] that it must be recognized as a joint participant in the challenged activity, which, on that account, cannot be considered to have been so ‘purely private’ as to fall without the scope of the Fourteenth Amendment”); Moose Lodge v. Irvis, 407 U.S. 163, 177 (1972) (the Pennsylvania Liquor Control Board's regulations do not “sufficiently implicate the State in the discriminatory guest policies of Moose Lodge to make the latter ‘state action’…”).

In Lugar v. Edmondson Oil Co., a truckstop operator alleged that a private party (the Edmonson Oil Company) acting jointly with state agents, including a state court clerk and a County Sherriff, had denied him property without due process of law. In evaluating this claim, the Court set out a two-part test that was supposed to give greater clarity for how one determines when a private actor's “deprivation of a federal right [can] be fairly attributable to the State.”

Lugar, 457 U.S. at 923.

The Court, applying this test, found that Lugar was eligible to sue for damages related to incursions on his constitutional rights since the Edmonson Oil Co. had “obtained significant aid from state officials.”

Lugar, 457 U.S. at 937.

Almost a decade later, Edmonson v. Leesville Concrete Company

500 U.S. 614 (1991).

How clear are these legal principles? While it does not seem especially difficult to conclude that private parties participating in the jury selection process are subject to the same constitutional constraints that bind government lawyers and judges, other cases show the ambiguities inherent in applying these and other judicial precedents.

See generally Terri Peretti, Constructing the State Action Doctrine, 1940–1990, 35 Law & Soc. Inq. 273 (2010).

Conversely, even for obviously governmental actors, the reach of state action can be stopped by relatively modest private barriers or legal circuit breakers. Thus, NCAA v. Tarkanian found that a public university's suspension and demotion of a public employee (basketball coach Jerry Tarkanian) did not amount to state action.

488 U.S. 179 (1988).

Besides looking to the direct or implicit nexus between a private actor and the state, a second, and admittedly overlapping consideration the Court turns to in state action cases is what we might label an affirmative acts standard. As Huhn explains, in assessing whether the government's relationship with private individuals or organizations creates state action, courts look to “affirmative acts” by government rather than “failures to act.”

Huhn, supra note 31, at 1385.

The affirmative acts standard was at the heart of the famous civil rights case Shelley v. Kraemer.

334 U.S. 1 (1948).

The courts have sounded similar and perhaps even clearer notes about the necessity of the “action” component of state action in other cases. Thus, in Flagg Bros., Inc. v. Brooks the Court affirmed that it “has never held that a State's mere acquiescence in a private action converts that action into that of the State.”

436 U.S. 149, 164 (1978).

A third analytic guidepost, appearing (somewhat intermittently) in state action jurisprudence involves considering whether the state has leveraged private behavior through coercion or encouragement. This coercion standard builds on the idea that when the state merely authorizes a private party to engage in behavior or pursue a course of action it does not create state action. Instead, the courts require either a more involved and ongoing, cooperative relationship (or state nexus) or private behavior that is induced by government incentives or pressure. As the Court stated in Jackson v. Metro. Edison Co. (echoing Shelley), the mere “exercise of…choice allowed by state law” does not create state action “where the initiative comes from… [private parties] and not from the state.”

Jackson, 419 U.S. at 357.

As mentioned previously, the rise of “big tech” and social media has further complicated this analysis of what comprises state action. Privately held social media websites and “apps” (applications) have become de facto public forums, at least for online communication and expression. But new rules or parameters placed on these companies and platforms by legislatures and other regulators invite us to consider whether the nexus between public authority and private power establishes state action through association or coercion. Consider the example of Florida which passed a “Big Tech” law in May 2021 that would impose $100,000 fines on certain social media companies for removing statewide political candidates from their online platforms, and $10,000 fines for other removed candidates.

Steven Lemongello & Gray Rohrer, DeSantis Signs Big Tech Censorship Bill, Despite Constitutional Concerns, Orlando Sentinel (May 24, 2021), https://www.orlandosentinel.com/politics/os-ne-desantis-signs-big-tech-bill-20210524-dvycnrscjjbfnnh7vbs3wimv5q-story.html.

Again, identifying a more or less discrete coercion standard for state action does not resolve how we ascertain or define the necessary level of influence, pressure, or encouragement that turns private action into public action. In many instances, these issues are difficult, and the Court's conclusions and judgments are not self-evident. In Rendell-Baker v. Kohn, for example, the Court declined to identify a private school as a state actor even though a state body (the State Committee on Criminal Justice) needed to approve some of its hiring decisions and “public funds accounted for at least 90% [of the school's operating budget], and in one year 99%.”

Rendell-Baker v. Kohn, 457 U.S. 830, 832 (1982).

A fourth and final standard the Court has often looked to in evaluating state action is whether a private organization or individual engages in or contributes to distinctive government activities or public functions. Returning to Marsh, the Court found that a privately held town was subject to the protections of the Constitution because it possessed “all the characteristics of any other American town.”

Marsh, 326 U.S. at 502.

Such an emphasis on how a corporation or business has assumed government operations, responsibilities, or powers necessarily shifts our attention away from the state's behavior to that of a private party.

Like other areas of state action jurisprudence, the courts have not been clear or consistent in how they understand this public functions argument or what tools we need to apply it. Perhaps most obviously, private action becomes public action when it effectively replaces the historical operations of the state, including when a private actor engages in “public functions that have heretofore been exclusively performed by government.”

Huhn, supra note 31, at 1389–90.

In Manhattan Community Access Corp. v. Halleck, Justice Kavanaugh's majority opinion emphasized that “to qualify as a traditional, exclusive public function within the meaning of our state-action precedents, the government must have traditionally and exclusively performed the function.”

587 U.S. ____ (2019), 139 S.Ct. 1921 (2019) (emphasis in original).

In any event, whatever its judicial formulation, an historical or traditional “public functions” approach does not give much guidance when it comes to relatively new (or more controversial) aspects of government performance or policy. Is coordinating climate change policy a distinctive or signature public activity? How about regulating health care insurance markets?

In a subset of pertinent cases, judges emphasize that private action becomes constitutionally protected state action when it occurs in a space or locale where the public has general access (or a reasonable expectation of access). Again, Marsh is explicit on this point: “The more an owner, for his advantage, opens up his property for use by the public in general, the more do his rights become circumscribed by the statutory and constitutional rights of those who use it.”

Marsh, 326 U.S. at 506. Cf. Republic Aviation Corp. v. Labor Board, 324 U.S. 793 (the National Labor Relations Act does not allow employers to prohibit solicitation by employees outside of working hours but on company property). But see Cyber Promotions v. America Online, 948 F. Supp. 436, 442 (E.D. Pa. 1996) (America Online is not required to provide free speech protections to its users even though it has opened up its servers to the general public).

In still other instances, the courts note that private action and organizations become subject to the Constitution when they become an intrinsic part (or a potential veto point) of government operations. Thus, in the “white primary” case of Terry v. Adams, the Court ruled that an ostensibly private Texas county political organization, the “Jaybird Democratic Association or Jaybird Party” could not exclude Blacks from participating in its elections because doing so would effectively undermine the state's fair and free “election machinery.”

Terry v. Adams, 345 U.S. 461, 466 (1953). See also Smith v. Allwright, 321 U.S. 649, 663 (1944) (a political party's primary election is state action); Peretti, supra note 50, at 276 (discussing the “white primary” cases); Marsh, 326 U.S. at 506 (musing that a company owning a private highway could not restrict its usage in a manner that “gave it power to obstruct through traffic or to discriminate against interstate commerce”).

These different takes on the public functions standard are not exclusive or incompatible. But they often entail distinct analyses of legal sources: historical or inductive review of the customary operations of governments in some cases, evaluations of the behavior and purposes of private actors in others, and, at times, pragmatic judgments about the facts on the ground.

Before passing on to consider how the four judicial standards for evaluating state action might apply to the issues posed by Nevada's Innovation Zones, we take note of Huhn's observation that there “are two general approaches to applying these various tests.”

Huhn, supra note 31, at 1391.

For our purposes, we do not find it especially helpful or rewarding to choose between these two interpretive approaches. A thoroughgoing state action analysis of all four standards necessarily requires a careful review of the facts and particulars of a case and requires courts to consider a full range of factors that could turn private action into constitutionally proscribed government action.

Judgment A (finding state action and ruling for the citizen's First Amendment claims) fits most squarely with the majority opinion in Marsh. Imagine a future corporation acting under the proposed Nevada legislation (or something like it) and assuming effective authority over a Board of Supervisors that can exercise the “powers and duties of a board of county commissioners.”

Bill Draft, supra note 5.

In Marsh, the powers assumed by the Gulf Shipbuilding Corporation fell short of these rather sweeping authorities. Gulf Shipbuilding owned most of the infrastructure, commercial, and residential properties in Chickasaw, and, as noted, employed the town's sole law enforcement agent. But the Alabama Corporation did not directly control the educational system,

Id. at Section 24.

Once the Innovation Zone Board and the territories under its control fall under the aegis of state action, one can find abundant precedent to then establish that a citizen's right to distribute literature and share her (religious) views is central to our cherished constitutional protections.

See, e.g., Hague v. Committee for Industrial Organization, 307 U.S. 496 (1939).

Viewed through the lens of the four standards enunciated earlier, this conclusion (Judgment A) is best supported by the “public functions” standard. While Innovation Zones would need to be authorized by state statutes like the one under consideration in Nevada, such legislation, on its own, does not obviously entangle government in the work of the Zone or amount to coercing corporations to take on governance tasks.

Obviously, different facts could change the relationship. If Innovation Zones within a state begin to supply a substantial amount of state revenues, the state association or cooperation standard might well come into play.

The case for applying Marsh analysis to twenty-first century Innovation Zones, and finding them constitutionally comparable to twentieth century company towns is rather compelling. But is there a sensible argument for arriving at what we have described as Judgment B? Once one determines that a company directing activities in the Innovation Zone is a state actor, is there a plausible claim that would allow the Zone's Board to prevail in a dispute with a citizen asserting constitutional rights like free speech and freedom of religion?

To begin with, one might note that the liberties enshrined in the Bill of Rights are not inviolate. Even if the Innovation Zone Board and its agents are cognizable as government actors, they might conceivably overcome First Amendment claims with a demonstration of a “compelling state interest” and otherwise meeting the test of strict scrutiny.

See generally Stephen A. Siegel, The Origin of the Compelling State Interest Test and Strict Scrutiny, 48 Am. J. Legal Hist. 355 (2006).

Perhaps more plausibly, even after ascertaining that an Innovation Zone qualifies for state action, a judge might still turn to a public forum analysis to determine the extent of a citizen's rights to use the Zone's sidewalks, streets, and other locales.

See generally Steven G. Gey, Reopening the Public Forum—From Sidewalks to Cyberspace, 58 Ohio St. L. J. 1535 (1998); Robert Post, Between Governance and Management: The History and Theory of the Public Forum, 34 UCLA L. Rev. 1713 (1987).

Current doctrine recognizes three classes of government space where individuals might seek to exercise their constitutional civil liberties: traditional public forums, designated forums, and nonpublic forums.

Perry Education Association v. Perry Local Educators’ Association, 460 U.S. 37 (1983).

The first category includes those “places which, by long tradition or by government fiat, have been devoted to assembly and debate.”

Id. at 45. See also Cornelius v. NAACP Leg. Def. Fund, 473 US 788, 800 (1985).

Designated or limited forums are sites or venues the government chooses to open and identify as public forums,

Perry Educ. Ass’n., 460 U.S. at 45.

Finally, in nonpublic forums “the state may reserve the forum for its intended purposes, communicative or otherwise, as long as the regulation on speech is reasonable and not an effort to suppress expression merely because public officials oppose the speaker's view.”

Perry Educ. Ass’n., 460 U.S. at 46.

This backdrop helps us to understand that in a case pitting the First Amendment rights of an individual against a corporation's Innovation Zone interests (in, say, protecting property and conducting business), the outcome could well turn on the specifics of the space in which the sought communication or expression takes place or, more broadly, in how we understand the nature of the Zone itself. If the entire Zone can be regarded as a nonpublic forum, dedicated to promoting commerce or technological innovations, it seems possible that a Zone visitor's distribution of religious literature might be reasonably restricted. Indeed, the draft Nevada legislation makes clear at the very outset that its purpose in creating Zones is to yield benefits to the state as a whole and the “general welfare of its inhabitants.”

Bill Draft, supra note 5, at Section 1.5 (“[t]he Legislature hereby find and declares that: The diversification of the economy of the State is vitally important to the general welfare of its inhabitants and the fiscal viability of the state. The state must pursue inventive and creative programs… to attract new forms and types of businesses and to foster economic development…”).

Alternatively, given the expanse of the Zone, an evaluating judge might distinguish some “common areas” (sidewalks, streets, parks, shared dining areas) where the First Amendment fully attaches from others dedicated more directly to say, business, production, research, or technology development—not dissimilar to other “free speech zones” that have been established by governments.

See, e.g., Ralphs Grocery Co. v. United Food and Commercial Workers Union Local 8, 55 Cal. 4th 1083 (2012) (interpreting the California State Constitution to conclude that “common areas” of privately owned shopping malls are public forums since they “generally have seating and other amenities producing a congenial environment that encourages passing shoppers to stop and linger, to leisurely congregate for purposes of relaxation and conversation” and distinguishing these “from areas immediately adjacent to the entrances of individual stores” which offer fewer free speech protections).

In the end, we should not forget that Marsh's majority freely embraced a balancing test between “the Constitutional rights of owners of property against those of the people to enjoy freedom of press and religion.”

Marsh, 326 U.S. at 509.

Given this discussion, and the apparent parallel between the Marsh company town and the comprehensive powers of the proposed Innovation Zones, it might be hard to think one could find support for judgments (C and D) that find no state action in a company's operation of a Zone. But a closer look at the specific arguments in Marsh points to at least one avenue for concluding that a Nevada-style Innovation Zone might not give rise to such a claim.

Again, Justice Black's majority decision in Marsh v. Alabama emphasized the “public functions” standard for recognizing state action. It further provided three reasons for concluding that the Gulf Shipbuilding Corporation's company-owned town was mostly indistinguishable from a traditional municipality governed by public officials.

First, the Court indicated that Chickasaw, in its appearance, layout, and provided services closely resembled a government entity: “there is nothing to distinguish [Chickasaw] from any other town and shopping center except the fact that the title to the property belongs to a private corporation.”

Id. at 503.

Justice Black's analysis is worth recapitulating because it is easy to imagine that Nevada, or other state Innovation Zones, would not closely match the Chickasaw profile. The draft legislation under consideration in Nevada stipulates that an Innovation Zone can only be established on “50,000 contiguous acres of undeveloped land owned or controlled by the applicant…within a single county.”

Bill Draft, supra note 5.

Furthermore, the Zone cannot “be part of a city, town, tax increment area or redevelopment area established by law” and already populated with preexisting “permanent residents,” and it specifically defines the “innovative technology” that would be considered acceptable as “Blockchain, Autonomous technologies, The Internet of things, Robotics, Artificial intelligence, wireless technology, Biometrics, and Renewable resource technology.”

Id.

This context leads to the inference that, unlike “freely accessible and open” company towns like Chickasaw, Nevada Innovation Zones are likely to be somewhat remote, difficult to access, and distinct from more settled communities. Moreover, given the Zone legislation's stipulation that the acquiring company “will incorporate innovative technology throughout the Zone”

Id.

Of course, even if the Innovation Zone's Board could convince a court that in its appearance, operations, and accessibility the Zone is distinct from an ordinary municipality, the argument might founder on Marsh's public interest argument. After all, shouldn’t Zone residents have a right to free and uncensored channels of expression and communication regardless of where they work and live?

But even this contention might not prevail if the corporation could establish that the Zone was primarily a workplace and that its inhabitants had other, more suitable and clearly public venues for their exercise of free expression rights. For example, an Innovation Zone might be less analogous to a Marsh-style company town if its employees lived in a different location (and merely worked in the Zone) or if they only inhabited the Zone for finite periods before transferring to other areas more permanently.

These arguments might also assume greater force if judges, in the future, take up the suggestion that online and digital platforms might be regarded as constitutionally protected public forums or “common carriers or places of public accommodation.”

Biden, 141 S. Ct. at 1226 (2021).

It is challenging but possible, therefore, to reason one's way to Judgment D—where one concludes that the Innovation Zone and its governing Board are not state actors and, therefore, that a citizen claiming free expression and religious free exercise rights would not prevail. Getting to Judgment C (no constitutional state action but the citizen still wins) would require the additional step of finding rights outside of the federal Constitution to allow a petitioning citizen to secure a favorable judgment. Such rights might be found, for example, in state statutes or a state constitution.

See, e.g., G. Alan Tarr, Understanding State Constitutions (2000); Robert F. Utter, The Right to Speak, Write, and Publish Freely: State Constitutional Protection Against Private Abridgement, 8 U. Puget Sound L. Rev. 157 (1985).