May
21, 2002, 8:45 a.m. Out-of-Control
AGs
Restraining
state attorneys general.
By Michael
DeBow
t's
time to rein in the power of state attorneys general. For most of American
history they did vital, but routine and distinctly unglamorous, legal
work for their states. But beginning in the 1980s, some Democratic attorneys
general (AG) challenged the Reagan administration's policies in antitrust
and environmental law, pursuing their own agendas through litigation.
Activist AGs relied on two venerable but largely ignored sources of authority:
their common law power and their so-called parens patriae power,
recognized in the majority of states, to sue on behalf of state residents.
The most disruptive
outbreak of state AG activism has been the anti-tobacco crusade. Beginning
in 1994, 40-plus states filed baseless lawsuits asking courts to order
cigarette makers to reimburse them for Medicaid expenditures covering
smoking-related health problems. As a matter of law, the cases were wholly
without merit. Yet the AGs succeeded in extracting a settlement largely
because the tobacco companies knew they could pass the costs along to
smokers.
That's exactly what happened. Shortly after the "master tobacco settlement"
was announced in 1998, the companies hiked their wholesale prices more
than enough to finance their multibillion-dollar annual payments to the
states. The total payments over the first 25 years were estimated at $206
billion, nearly all of which will come out of smokers' pockets —
in effect, an unlegislated tax increase on cigarettes.
Not only was the settlement contemptuous of the doctrine of separation
of powers in state governments, but it also directed tobacco companies
to pay enormous sums of money to private plaintiffs' lawyers hired by
the states. Those lawyers, some of whom bankrolled state political campaigns,
will split a $750 million pot every year during the first five years of
the settlement, declining to a mere $500 million annually ... forever.
Again, the billions of dollars for those payments will come from smokers,
with the cigarette companies acting as tax collectors.
And if that were
not enough, the market shares of the giant tobacco companies' shares are
protected by the settlement agreement, which essentially blocks future
entrants into the market. Incredibly, the agreement requires that smaller
companies that didn't consent to the settlement — even new companies
that didn't exist when the settlement was signed — pay damages into
escrow to cover any future liability they might incur for smoking-related
illnesses. The intent, of course, was to prevent upstart cigarette makers
from cutting prices and taking market share away from the four majors.
Naturally, the states had to assure the financial viability of the companies
that each year would be fattening state coffers.
In a nutshell, the
tobacco litigation meant de facto increases in cigarette taxes, obscene
enrichment of politically connected trial lawyers, and states acting as
cartel managers for giant cigarette makers.
One might expect voters to demand that state AGs reject that type of litigation.
Still, there has been no widespread public outcry — at least, not
yet. Meanwhile, state AGs have sued the lead-paint industry in Rhode Island
and gun makers in New York, seeking reimbursement for health-care expenditures,
like they did in the tobacco litigation. To date, the lead-paint and gun
suits have not settled. Indeed, many similar suits filed by city governments
against firearms makers have been thrown out of court — a most reassuring
development for supporters of the rule of law.
Regardless, any industry whose products allegedly cause harm covered by
public-health programs should be concerned about government lawsuits.
Automobiles and alcoholic beverages come immediately to mind. Perhaps
not so obvious a target is the food industry. But the press, in a barrage
of recent stories, has criticized food producers for — you guessed
it — ads that lead to increased consumption that causes obesity that
results in health problems that require public expenditures.
What can be done
to put an end to this kind of state AG activism and backdoor tax increases?
Several alternatives are available. Four states have passed statutes greatly
restricting their AGs' ability to hire private contingency-fee lawyers.
Others are considering legislation that would limit state claims to those
that could be asserted by private defendants — that is, states would
have no greater legal rights than a private party suing on his own. Those
stop-gap measures are no doubt helpful. But the underlying problem requires
a more permanent remedy: Serious thought should be given to restricting
— or even eliminating — state AGs' common-law and parens
patriae authority. Otherwise, the temptation to sue unpopular businesses
on trumped up legal theories may well be irresistible.
—
Michael DeBow is professor of law at Samford University's Cumberland School
of Law. He is the author of Restraining State Attorneys General, Curbing
Government Lawsuit Abuse, just released by the Cato
Institute.
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t's
time to rein in the power of state attorneys general. For most of American
history they did vital, but routine and distinctly unglamorous, legal
work for their states. But beginning in the 1980s, some Democratic attorneys
general (AG) challenged the Reagan administration's policies in antitrust
and environmental law, pursuing their own agendas through litigation.
Activist AGs relied on two venerable but largely ignored sources of authority:
their common law power and their so-called parens patriae power,
recognized in the majority of states, to sue on behalf of state residents.
