The state action doctrine is a mess. Explanations for why federal courts sometimes treat the private actions of private parties as public actions subject to the Constitution, like the Supreme Court did in Shelley v. Kraemer, are either vastly overinclusive or fail to explain our law and values. A better approach is to understand the state action doctrine in institutional terms. I introduce a two-step, institutionally focused state action theory that is a natural consequence of a broader public/private theory of legal systems. In the first step, a court identifies a “state action problem,” meaning a privately made law that is poorly governed by the ordinary rules governing the making of contracts. If a court finds a state action problem, it will proceed to the second step and decide whether courts have superior capacity to remedy the problem than do other governmental institutions. This theory captures important intuitions about the public regulation of private lawmaking that other approaches either ignore or fail to ground theoretically. In addition, it helps to justify why racial discrimination is often a decisive fact in finding state action, explains why the doctrine is rarely invoked, and provides a firm, theoretical foundation for a doctrine otherwise adrift in search of guiding principles.
Turner, Christian, State Action Problems (March 20, 2012). UGA Legal Studies Research Paper.