“Substance-over-Form” Direct Regulation:
The Third Circuit’s New Functional Test for Intergovernmental Immunity in CoreCivic Inc. v. Governor of New Jersey

1. Introduction

The United States Court of Appeals for the Third Circuit, in a precedential opinion authored by Judge Bibas, has delivered the most significant intergovernmental-immunity decision since North Dakota v. United States (1990). The court confronted a novel New Jersey statute (AB 5207) that bars any State, local, or private entity from entering, renewing, or extending a contract “to detain people for civil immigration purposes.”

CoreCivic—a long-time private operator of the Elizabeth Detention Center—sued, arguing that the measure violated the Supremacy Clause by (i) infringing intergovernmental immunity and (ii) being pre-empted by federal immigration statutes. The federal government filed a statement of interest backing CoreCivic. The District Court granted summary judgment for CoreCivic; New Jersey appealed; and the Third Circuit has now affirmed.

The decision splits the panel. The majority (Judges Bibas and Krause) holds that AB 5207 “directly regulates the federal government” in substance, even though in form it applies only to non-federal parties. Judge Ambro dissents, warning that the majority collapses immunity into pre-emption and disrespects federalism.

2. Summary of the Judgment

• Holding – AB 5207, as applied to CoreCivic, is unconstitutional because it violates the doctrine of intergovernmental immunity. The panel therefore affirms summary judgment for CoreCivic without reaching statutory pre-emption.
• Key Finding – A state law may be a direct regulation of the United States even if its text does not mention the federal government, provided it functionally destroys the federal government’s marketplace or substantially interferes with a core federal power.
• Relief – Enforcement of AB 5207 against CoreCivic (and, inevitably, against ICE) is permanently enjoined.

3. Analysis

3.1 Precedents Cited & Their Influence

• McCulloch v. Maryland (1819) – The foundational “supremacy” case. Cited for the proposition that the federal government must remain free from “hostile state legislation” that would destroy federal policy.
• North Dakota v. United States (1990) – Supplies the modern two-prong immunity test (direct regulation or discrimination). The majority distinguishes it on facts (mere cost-raising vs. outright prohibition) yet embraces its functional approach.
• United States v. Washington (2022) – Re-emphasizes that states may not directly regulate or discriminate against the United States. Used to restate the general rule.
• Public Utilities Commission v. United States (1958) & Leslie Miller, Inc. v. Arkansas (1956) – Classic examples where state licensing/approval requirements for federal contractors were struck down. Majority analogises AB 5207 to these “functional prohibitions.”
• Dissent’s Authorities – Judge Ambro leans heavily on Penn Dairies (1943) and the plurality in North Dakota to argue that only Congress, via pre-emption, can bar neutral state regulations that merely make federal operations more difficult.

3.2 The Court’s Legal Reasoning

1. Immunity Framework – Reiterates the two-prong test: (1) direct regulation; (2) discrimination. Because AB 5207 facially treats State and federal actors the same, the dispute centres on prong (1).
2. Substance-Over-Form – The majority reads McCulloch, Miller v. City of Milwaukee, and others as commanding courts to “look through form and behind labels.” A statute that eliminates everyone with whom the federal government may contract operates identically to one that expressly forbids the federal government to contract. Thus, it is a direct regulation “in everything but name.”
3. Severe Interference – Even if one doubted the “contractor ban” theory, the law still fails because it “substantially interferes with a core federal function”—civil immigration detention. By closing the only suitable facility within 250 miles of New York City, it “cripples ICE’s operations” and risks forced releases.
4. Rejecting New Jersey’s Defences
   • Textualist Defence – Not persuasive; the Constitution protects substance, not “shadows.”
   • Neutrality Defence – Even if the State also bars itself from private criminal detention, that is irrelevant; the challenged provision targets a market where only the United States is purchaser.
   • Federalism/Separation-of-Powers Concern – The court answers that intergovernmental immunity is itself a constitutional limit; Congress need not enact express pre-emption for the judiciary to police that limit.
5. Dissent’s Counter-Logic
   • Defines “direct regulation” formally—must apply to the United States.
   • Warns that the majority blurs immunity and pre-emption, handing courts an indeterminate “substantial burden” test better left to Congress.
   • Notes that New Jersey forbids private criminal detention too, undermining any discrimination claim.

3.3 Potential Impact

• Broader Reach of Intergovernmental Immunity – The decision empowers federal contractors nationwide to challenge state laws that, in practice, foreclose contracting opportunities central to federal programmes.
• States’ Regulatory Space Narrows – Especially in fields where the federal government is the sole or dominant purchaser (immigration detention, military procurement, nuclear-waste disposal, etc.), states must now fear immunity challenges even to facially neutral laws.
• Circuit Alignment – The holding aligns the Third Circuit with the Ninth Circuit’s en banc decision in GEO Group, Inc. v. Newsom (2022), creating a formidable anti-interference front; but it also sets up tension with the Seventh Circuit’s narrower view in McHenry County v. Raoul (2022). A circuit split on the horizon invites Supreme Court review.
• Immigration Enforcement Logistics – Practically, ICE retains access to the Elizabeth Detention Center, preserving removal capacity in the Northeast corridor.
• Legislative Reactions – Expect states to draft more nuanced regulations (e.g., workplace standards, wage laws) rather than outright bans, and Congress to face pressure to clarify the permissible regulatory border.

4. Complex Concepts Simplified

Intergovernmental Immunity

A constitutional doctrine (rooted in the Supremacy Clause) that bars states from (1) directly regulating the United States or (2) discriminating against it.

Direct vs. Indirect Regulation

“Direct” means the statute’s text governs the United States or an entity so intertwined that it is the government’s alter ego; the Third Circuit now adds a functional variant—where the law in effect leaves the federal government no room to operate.

Pre-emption

A statutory doctrine: when Congress enacts legislation that expressly or impliedly overrides state law.

Civil Immigration Detention

Holding non-citizens pending removal proceedings or deportation; not punitive but preventive/administrative.

Contractor Immunity

Private companies may invoke federal immunity when state regulation would substantially interfere with the federal activity they are hired to perform.

5. Conclusion

CoreCivic Inc. v. Governor of New Jersey is a landmark because it converts the long-mouthed mantra “look to substance, not form” into a concrete test: a state statute that functionally wipes out the federal government’s only means of contracting in a particular policy domain is a direct regulation barred by the Constitution itself. The ruling provides robust protection for federal operations but simultaneously trims state autonomy, pushing delicate federalism questions from legislatures into courts. Whether the Supreme Court will endorse this expansive functional reading—or prefer the dissent’s more formal boundary—remains to be seen, but for now the Third Circuit has clearly signalled that clever drafting cannot evade the supremacy of federal power.