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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.