June 22, 1999
Regulation By Litigation: The New Wave of Government-Sponsored Litigation
With increasing frequency, lawsuits are being brought on behalf of state and local governmental entities seeking recovery for public harm allegedly suffered from the sale or use of some legal product. The suits have been identified by some as a new form of social engineering through the litigation process, and there has been much debate over whether they are attempts to resolve in court what are essentially legislative questions—tax rates and regulatory policies applicable to specific products. Tobacco, firearms, and lead paint are the most recent targets of such lawsuits, but some have suggested that suits involving alcohol, gambling, health care, and other products or services could well be on the horizon.
These novel suits raise difficult questions about how our society allocates resources, regulates commercial speech, and formulates rules of law. They also present important questions regarding how state or local political figures can become the engines for rules of tort law that may have been consistently defeated either in the legislature or when advanced by private litigants in the courts. Is this a useful balance in our political system or an abuse of power?
To respond to these questions The Manhattan Institute, The Federalist Society, and the U.S. Chamber of Commerce held a conference on the subject in June of 1999. This publication is an edited transcript of that conference. The conference sponsors want to thank Kim Kosman for her fine editing of the transcript. We note that the footnotes throughout the text are hers and are intended to provide the reader with information useful to understanding comments made by the conferees. We also wish to thank the conference panelists whose contributions made possible an informative, provocative, and revealing transcript.
Judyth W. Pendell, Director, Center for Legal Policy, The Manhattan Institute
Leonard Leo, Director, Lawyers Division, The Federalist Society
James Wootton, President, Institute for Legal Reform, U.S. Chamber of Commerce
Panel One: State Attorneys General and the Power to Change Law
DR. DONALD VINSON: A new trend is developing in the legal system in this country. With increasing frequency, lawsuits are being brought on behalf of state and local government entities. These suits seek to recover for public harm allegedly suffered from the sale of legal products. The most obvious examples today are tobacco and firearms, but there’s already speculation about future litigation targeting alcohol, gambling, and chemicals, just to name a few.
The suits have been identified by some as a new form of social engineering through the litigation process. Others claim that these cases are being driven by the desire of state and municipal governments for revenue—revenue that can be raised without imposing new or increased taxes.
Finally, since most of these cases involve the use of outside counsel retained on a contingency fee basis, some claim that these cases are driven primarily by the financial interests of the plaintiffs’ bar.
These novel suits raise important and difficult questions. Are these kinds of cases within the proper law enforcement authority of the state attorneys general? What are the political and economic motivations behind this litigation? Where is the trend going? These and other questions will be explored by four distinguished individuals representing diverse points of view.
ATTORNEY GENERAL BILL PRYOR: Two years ago, I warned in editorials published in the New York Times and the Wall Street Journal that the lawsuits filed by my fellow state attorneys general against the tobacco industry threaten the entire business community.1 Since then, the legal landscape has deteriorated to the point where we are here today to discuss the new business of governmentsponsored litigation. My objection to this new wave of lawsuit abuse is that it violates a key principle that underlies the American understanding of the rule of law. I will explain my objection and outline four abusive features of this litigation. I also will offer four ideas for curtailing this abuse.
Eleven years ago, Justice Antonin Scalia was the lone member of the Supreme Court to vote to declare the independent counsel provisions of the Ethics in Government Act unconstitutional. The beginning of his dissenting opinion, which I think it’s fair to say is more popular now than it was in 1988, is worthwhile reading. He wrote:
It is the proud boast of our democracy that we have a ‘government of laws and not of men’. Many Americans are familiar with that phrase; not many know its derivation. It comes from Part the First, Article XXX of the Massachusetts Constitution of 1780, which reads in full as follows: ‘In the Government of this Commonwealth, the Legislative Department shall never exercise the Executive and Judicial powers, or either of them; The Executive shall never exercise the Legislative and Judicial powers, or either of them; The Judicial shall never exercise the Legislative and Executive powers, or either of them...to the end that it may be a government of laws and not of men. The framers of the federal Constitution also viewed separation of powers as the central guarantee of a just government.2
The recent government suits against the tobacco and firearms industries trample upon this central feature of the rule of law. The aim of this litigation is to shift the awesome powers of legislative bodies—powers to control commercial regulation, taxation, and appropriation—to the judicial branch of government. With that shift comes an assault on civil rights, democratic representation, and free enterprise.
The government suits against the tobacco and firearms industries involve commercial regulation that, in a legislative arena, would be impossible to achieve. The national tobacco settlement, for example, imposes unprecedented advertising and other marketing restrictions on the manufacture and sale of tobacco products. The settlement creates a complicated regulatory scheme that bans the use of cartoons in tobacco advertising, the sale of clothes with brandname logos, sponsorships of most forms of commercial entertainment, and even some forms of lobbying. Antitobacco activists could not have enacted legislation on this scale in either Congress or in a substantial number of state legislatures. Indeed, they tried and failed.
From a legal standpoint, these restrictions could not have been achieved without violating, for example, the free speech clause of the First Amendment. Further, the historic respect in the common law for freedom of contract and private property is undermined when the manufacturer of legal but dangerous products is ordered to pay huge sums for harms that were unforeseeable.
By utilizing litigation to achieve new regulation, the proponents of government expansion have a powerful tool. What had been impossible, legally and politically, suddenly becomes possible—even attractive or worse, inevitable. If the new regulations are “voluntarily” accepted by industry through a settlement agreement, then the constitutional and other legal objections become moot. Political consensus becomes irrelevant.
The main objective of the tobacco lawsuits, despite the rhetoric of the proponents, was to raise revenue. Indeed, the tobacco settlement represents the largest governmentimposed increase in the price of a legal product in the history of the United States. Using lawsuits to raise revenue is far easier than raising taxes the oldfashioned way. This method bypasses the need for representatives of the voters to approve the tax. Messy restrictions, such as requiring the revenue measure to originate in the House of Representatives, can also be avoided.
The myth told by the proponents of these lawsuits is that the new revenue involves payment of damages. Compensatory damages, in theory, involve retroactive compensation (payment for past harm) plus limited prospective relief (payment for future harm caused by past wrongdoing). The tobacco settlement involves neither. There are no damages for past losses. Indeed, Professor Kip Viscusi of the Harvard Law School has proved that cigarette taxes more than offset the governments’ costs for treating tobaccorelated illnesses.3 The tobacco deal requires the industry to create a new revenue stream based on current government costs, with no credit for existing tax collections. That revenue stream continues forever without regard to the good or bad conduct of the industry.
Tobacco lawsuits, in addition to invading the legislative power to make law and raise revenue, co-opt the power of appropriation. This intrusion has sparked some battles in states where both governors and legislators want to control the spending of tobacco revenue. The most egregious example involves the billions of dollars paid to attorneys without legislative appropriation. The payoff to these attorneys makes these lawsuits a remarkably inefficient way to raise revenue. In addition, the settlement creates a multibillion dollar foundation for health research and disease prevention without legislative approval or oversight.
At bottom, these lawsuits involve the familiar activist tactic of using the judiciary to change the law. Two and a half years ago, Dick Scruggs said at a Federalist Society conference that, in the light of the misconduct of the tobacco industry, “It really doesn’t matter what legal theory you use.” His point was simple: the tobacco suits were vehicles for changing the law. The attorneys general used novel legal theories and crafted their complaints to avoid the traditional remedy of subrogation, which allows defendants powerful arguments of assumption of risk, contributory negligence, and statutes of limitation.
These lawsuits were filed en masse to politicize the judicial process while a public relations campaign said it was “all about kids.” These lawsuits represent the antithesis of the rule of law, for the end was used to justify the means.
For those who want to curb this new form of lawsuit abuse, I offer four ideas. First, some consideration needs to be given to a legislative ban of government suits against manufacturers for indirect harm, except for the traditional remedy of subrogation. If governments sue industries for harm primarily suffered by citizens, such as smokers, then the industry should be able to assert wellestablished defenses of contributory negligence, assumption of risk, and statutes of limitation. The government should not have rights to sue that are superior to the rights of the citizens on whose behalf the lawsuits are filed.
Second, there either needs to be a ban of contingent fee contracts for government attorneys or tighter regulation in this area. For a long time, contingent fee contracts were considered unethical. The justification for these fees was the need for poor persons with valid claims to have access to the legal system. Governments do not have this problem. Governments are wealthy because they have the power to tax and condemn. Governments control access to the legal system. The use of contingent fee contracts allows governments to avoid the appropriation process; it creates the illusion that these lawsuits are being pursued at no cost to the taxpayers. These contracts also create the potential for outrageous windfalls, or even outright corruption, for political supporters of the officials who negotiated the contracts.
Third, government suits against industry should be subject to fair venue rules. There was a fair amount of forum shopping in the tobacco suits, and I suspect it is occurring in the firearms suits as well. The usual presumption in favor of the plaintiff’s choice is unfair to an outofstate corporation, especially when the government plaintiff actually controls the entire court system.
Fourth, these suits should require special rules for appeals. In a “bet your industry” lawsuit, it could be impossible for the defendants to post an appeal bond. When government pursues novel legal theories against entire industries for enormous sums of money, there needs to be a fair chance for the appellate courts to ensure that the process is fair and the law is sound.
In American political thought, we have a rich history of trying to limit the power of government. Our forefathers understood the dangers of unchecked power. We should follow that tradition by prohibiting governments from using civil lawsuits for abuses against our citizens. For two years I resisted intense pressure to join the tobacco litigation because I am firmly committed to the rule of law and limited government. Lawsuit abuse by government is the most serious challenge to the rule of law today. The free market and the cause of human liberty cannot survive much more of this litigation madness.
ATTORNEY GENERAL ELIOT SPITZER: Looking over the legal landscape of the past few years, there has been a tremendous redistribution of legal power away from Washington and back to the states. Most strikingly, in the Lopez case, it was determined that the federal government doesn’t even have the authority to prohibit guns within a thousand feet of schools. It seems a logical conclusion that states must take on a larger law enforcement role. Who better than the state attorneys general to step into the void and ensure that the rule of law is enforced?
Individuals, companies, and entities of all sorts must comply with their legal obligations. They may not hide information from government. I don’t tolerate this with drug dealers; I don’t tolerate this with tobacco companies. It is worth noting that tobacco companies had not been losing cases in the court system. They had not been losing in jury trials; indeed, they had been winning virtually every jury verdict. What brought them to the table was that the lies that they had perpetrated for years were being exposed to the public—they were finally being forced to tell the truth.
The plaintiffs’ bar was not out of control in tobacco litigation. Parenthetically, I would never enter into an agreement with the plaintiffs’ bar on a contingency fee basis to give away billions of dollars. But that has nothing to do with the tobacco settlement. The tobacco settlement has to do with public health. This wasn’t considered a revenue source. Maybe there are some who had that as a motivation, but I would say that there are an awful lot of doctors and health advocates whose primary motivation was to rid the public of one of the most significant health dangers that we have ever faced. I would add, moreover, that it is wrong to impugn the motivation of people who have done more to protect kids than just about anybody else.
There are two major types of litigation, at present, which demonstrate that attorneys general across the country can—and must—step forward into a void to ensure that the rule of law is enforced. I am referring to health and antitrust cases. Both types of litigation are being used these days as paradigms for what is good or bad, and I’m happy to debate these cases from the perspective of somebody who believes that there is, of necessity, an aggressive role to be played by attorneys general.
To make an overarching point: these cases do not make new law. They contain no new theories of liability. They contain no new tort theories. These are not efforts to redefine tort liability or antitrust law. Each of these cases is predicated upon decades of tort theory or antitrust law that is settled and accepted. That said, the beautiful thing about the law is that it is always there to be debated. Observers will disagree; intellectual ferment will continue. The law is dynamic. Does anybody debate the fact today that we should be able to go to court to ensure that there is integration? Does anybody debate the fact that we should be able to go to court to prevent sexual harassment in the workplace? This is the evolution of the law. These are things that are necessary and integral to what has made this country a wonderful place.
I think those who want the status quo imposed upon the law are expressing a fear of progress. We cannot reject the notion of the law’s evolution. We cannot reject the notion, especially in today’s world, where federalism has rightfully pushed much more authority back to the states. We cannot reject the notion that states should step forward into this void and bring cases against industry, whether it’s tobacco or Microsoft.
MR. MICHAEL WALLACE: I’m pleased to be here to talk a little bit about how we’ve done things in Mississippi. I will try to stay away from the philosophical issues that the first two speakers have touched upon. I would like to give you, from my perspective, a little history of how all this began, and how it ended in Mississippi litigation.
The power of attorneys general to change law was put directly to the test in Mississippi when our attorney general, Mike Moore, decided to sue the tobacco companies, as well as half a dozen of his own constituents, on the theory that they had caused the state to incur healthcare costs. Governor Kirk Fordice sought a writ of prohibition from the Supreme Court of Mississippi to block General Moore’s suit.4 I represented Philip Morris in that case and presented oral argument on behalf the defendants. By a vote of 6to1, the supreme court refused to decide whether or not General Moore could bring the suit. Instead, it denied extraordinary relief and said it would determine, after the trial was over, whether or not it should ever have begun.
Our tobacco litigation in Mississippi has gained such notoriety that one would be justified in thinking that this was our supreme court’s most important recent decision. This would be a mistaken assumption. The most important decision of our supreme court didn’t even rate an opinion, but only a short order refusing to lower a supersedeas bond on appeal.
In 1995, a Hinds County jury handed down a halfbillion dollar damage judgment in a business dispute against the Loewen Group, a Canadian chain of funeral homes.5 Our rules in Mississippi provide for the immediate enforcement of a judgment unless the debtor posts a bond of 125 percent of the judgment. The trial judge wouldn’t lower it—he demanded the full $625 million. Our rules permit the supreme court to lower a bond, but by a vote of 7-to-2, they wouldn’t do it, either. Unable to pay the judgment, Loewen was faced with the choice of bankruptcy or settling for whatever sum the plaintiffs would accept. The choice proved to be illusory. After paying a reported $130 million, Loewen went into bankruptcy earlier this month.
The Loewen decision confirmed that the effective power to change state law rests not in the hands of any elected state officials, but in locally elected trial judges and the juries they empanel. Any judgment that cannot be appealed because it cannot be bonded is law of the most immediate character. Because judges cannot file lawsuits, the trigger to invoke their power is in the hands of those who can. General Moore reached for that trigger when he filed his suit against the tobacco companies in his hometown of Pascagoula.
The arbitrators in the tobacco case who awarded General Moore’s lawyers $1.4 billion were apparently impressed by their creativity. Apparently they didn’t agree with General Spitzer that these were wellestablished principles in law. Even the dissenting arbitrator credited them with being the first to develop a theory upon which the state might sue. What was even more impressive in Mississippi, however, was the haste with which they put that theory together. The Mississippi legislature had already adopted a tort reform act, which governed all products liability cases as of July 1, 1994. Had General Moore failed to beat that deadline, every one of his theories would have been thrown out of court as directly contrary to the people’s will.
General Moore beat the deadline by having his claims heard by a chancellor without the presence of a jury. The people who rule consistently for the tobacco companies were cut out of the case on the first day by the decision to go to chancery court. He beat the deadline with a month to spare; unfortunately for him, however, he had other statutes that stood in his way.
When Congress adopted the Medicaid Program, it required each state to vest control of the program in a single state agency. By act of the legislature, Mississippi chose the governor as that single state agent and established the division of Medicaid in his office. Full authority over all litigation, as well as everything else dealing with Medicaid, was vested in the governor. Federal regulations allowed the governor to solicit the aid of other officials, such as the attorney general, but it specifically provided that these officials could not change any administrative decision or otherwise substitute their own will.
As required by law, General Moore certified to the federal government that the state plan vesting full authority in the governor was in full compliance with state law. General Moore, however, had a change of heart when Governor Fordice challenged his authority to sue for the recovery of Medicaid money. General Moore took the position that Mississippi’s constitution of 1890 granted him sole and complete authority over all of the state’s legal affairs. The attorney general alone, he argued, could decide what suits would be filed, what legal theories advanced, and what claims settled. To the extent the legislature had given any of that authority—and in Medicaid it had given all of that authority—to the governor, General Moore said that it had violated the constitution.
The courts of this country are the places where the power of the state is brought most immediately to bear on its citizens. Legislatures may establish general policies; executive officials may plan policy administration. It is only a court that can authorize men with badges and guns to take away a citizen’s money and put a citizen in jail. One might think, therefore, that it is important to determine which elected official has the authority to invoke the power of the courts. Certainly the Chief Justice of the Mississippi Supreme Court thought that was important. He found that, by filing the suit, General Moore was taking for himself power given by the legislature specifically and solely to the governor. “The situation placed before us,” wrote Chief Justice Lee, “is that of an attorney blatantly filing lawsuits without having a client, or at the very least, client authorization.” The rest of the court disagreed. Indeed, they saw no need to resolve the issue. Recognizing that a writ of prohibition is an extraordinary remedy, the court declined to express a view before the trial. The attorney general could try his case and the tobacco companies could bond the resulting judgement; only then would the supreme court determine whether the attorney general had authority to file the suit.6 The attorney general would be allowed to pull the trigger, and then, if anyone was left standing, the court would decide whether he had the authority to pick up the gun.
The result of the nondecision was not only foreseeable, it was predicted by the chief justice. He expected the defendants to choose settlement over the huge costs of the unauthorized lawsuit. With the court unwilling to grant relief before a trial, the defendants could hardly expect it would be of any assistance after the judgment. The Loewen case told them that the price of review on appeal would be a bond for 125 percent of the judgment. Faced with such a monumental risk and such a monumental sum, a settlement was made.
Mississippians still do not know who is in charge of their Medicaid program. They do know, however, that anyone with a filing fee can disregard the statutes and change their laws. As General Spitzer has noted, this is nothing new. Judicial evolution has been going on rapidly for the past fifty years. But the money available for these lawchanging efforts has increased immeasurably in this era of unlimited solicitation of personal injury plaintiffs.
General Moore’s genius was to marry the fees produced by the mass tort litigation with the authority of the state. The first power that the English people exercised over their kings was the power of the purse: to deny them tax revenues for unpopular causes. General Moore has recently boasted that the representatives of the people of Mississippi tried but failed to do just that. Key leadership in the Mississippi legislature, he noted, instructed him not to spend one dime of taxpayer money in this litigation. He was, nevertheless, able to circumvent centuries of parliamentary democracy by turning to the plaintiffs’ bar to provide him funds that representatives denied him. It’s a great deal for everyone—except those who take selfgovernment seriously. I will close by recalling the words of Alexander Hamilton, who took selfgovernment seriously indeed. In the government he helped design for the United States, the clash between the executive and the attorney general, like we saw in Mississippi, could never occur. In Federalist 70, he explains why the United States Constitution provides for a unitary executive:
Wherever two or more persons are engaged in any common enterprise or pursuit, there is always danger of difference of opinion. If it be a public trust or office, in which they are clothed with equal dignity and authority, there is peculiar danger of personal emulation and even animosity. From either, and especially from all these causes, the most bitter dissensions are apt to spring. Whenever these happen, they lessen the respectability, weaken the authority, and distract the plans and operation of those whom they divide.
For a prosecutor, independent from his chief executive, whether Mike Moore or Ken Starr—for both of whom I have the greatest respect—that sort of independence is a certain recipe for danger and bitter dissension.
ATTORNEY GENERAL SCOTT HARSHBARGER: Michael Moore is a personal hero of mine for many reasons, not the least of which is that he represents the very best of what an attorney general should be. He is somebody who, against great odds and acting independently, endeavored to address an issue that had not been effectively addressed under the law, in Congress, or in many of the states. But beyond that, I admire him because of the resistance he has encountered. Indeed, if you do your job well as an attorney general, you should expect to face resistance. The attorney general’s job is to try to define what, under the law, is in the public interest. This requires great courage and independence.
One of the great things about federalism is that the states are different. So are the powers of the attorneys general. There is a tendency to get confused in discussing this issue. When states act against national defendants that appear in a number of states, it appears that all attorneys general act under the same powers and responsibilities. That is not the case. We all have to adapt to the laws of our states. I think it’s important to understand that as attorney general in Massachusetts, my job was to uphold the law of the Commonwealth, to enforce the law equally and fairly, to hold individuals accountable, and to hold businesses responsible when they violated the law. I did that in the interests of all the other businesses, for example, who were competed against unfairly by law-breaking companies. It is, to some extent, the attorney general’s duty to create a level playing field. As attorney general, I had a law enforcement role and a role as a consumer protector.
My view of the role of the attorney general is very traditional—use the powers you have to enforce the law and support articulated public policy goals. In Massachusetts, for example, we greatly reduced the cost of workers’ compensation. One of the reasons is that the law was changed by the legislature. There also happened to be 125 prosecutions, by my office, of people who violated the law and who engaged in workers’ compensation fraud. We prosecuted not only workers, but insurance companies, doctors, and lawyers. We learned that businesses could do many things to affect reform, like engage in effective risk loss prevention programs. Insurance companies could actually investigate claims, and not simply pay them out of hand. In other words, for my office, the law was a very important tool and a part of a comprehensive effort to address a problem that faced businesses and workers. I saw my role as someone who supported a broadly stated public policy.
I will briefly explain my view about the tobacco case and the potential case that involves gun manufacturers. I happen to think they are unique. I do not think this is a slippery slope, but this is obviously a debatable issue. In the case of tobacco in Massachusetts, we brought our suit on behalf of kids and our taxpayers, 75 percent of who do not smoke. We were paying a quarterbillion dollars a year in medical costs for uninsured smokers as a result of their using this product. Illegal marketing practices were in effect that targeted underage smokers. The citizens of Massachusetts actually passed a referendum to tax tobacco, and we were already doing counteradvertising based on that taxation. The litigation, then, when begun in December of 1995, was in support of a broad community consensus on public policy. We intended to improve the public health, to stop practices that addicted kids to tobacco, and to see to it that tobacco companies play by the same rules as every other business. The tobacco industry was put on notice that it could no longer deceive people, and, if it caused damage or injury, it could be sued like every other business. I did not believe, in the tobacco case, that litigation was going to be the ultimate solution. It was our hope that it would trigger a broader, comprehensive approach and nationwide solution. Other attorneys general felt the same way.
With regard to guns, it’s important to realize that these cases are being brought, at least in Boston, on some very traditional theories of tort law, such as willful blindness and negligent distribution. While there is a product liability count, it is one of five or six in this action. The motive behind litigation in Boston is not to—simply—hold gun manufacturers responsible for violent behavior. Through innovative, nationally recognized community police and prosecution models, we’ve lowered our crime rate to the lowest rate in 31 years. We have put gun traffickers in jail. The state is monitoring gun sales. We are doing everything in terms of prosecution that people say they want us to do, but we still have a wide range of guns getting in the hands of underage kids, which is a major cause of violence. This does not deny individual accountability or responsibility. We’re holding everyone accountable. We’re simply saying that those manufacturers who demonstrate willful blindness about where guns are going and fail to take commonsense safety measures will also be held responsible for their actions, or failure to act.
As attorney general, I proposed handgun safety regulations that might have been agreed upon by the gun industry if this had not become a national issue. I proposed that commonsense safety measures that already applied to products on the market—toy pistols, baby bottles, aspirin caps—should be applied to guns. This proposal was rejected. This is the kind of effort that’s being made across the country—attorneys general are telling gun manufacturers that they are responsible for their marketing practices just like the rest of the business community. There’s a corporate responsibility piece here, just like there’s an individual responsibility piece; there is no reason that this product should be more dangerous than it has to be.
I might note that there were other areas we were involved in that were as controversial as guns and tobacco. People did not, however, rally and react in the same way to these other matters. Our office was active in hospital merger and conversion issues. We were concerned with bank mergers. We spent a lot of time insuring that Massachusetts’ retail stores could remain competitive. We penalized secondmortgage companies who victimized our citizens; we made them play by the same rules in Massachusetts that our own mortgage companies played by. We enforced the law on behalf of victims who otherwise had very little voice. This is the attorney general’s role, even if folks were not happy. But no one but tobacco and guns tried to claim we were acting unlawfully, or were the tools of trial lawyers, or tried to strip our powers.
My final point is this: there is a lot of hypocrisy in the arguments that are being made against the tobacco lawsuits and the potential gun manufacturing cases. When I proposed to use my consumer protection powers to deal with handgun safety, and when I suggested that Massachusetts might join in the tobacco litigation as the fifth state, I was told, by many people, that these issues ought to be addressed at the national level. I was told that having one rule for Massachusetts and one rule for 49 other states is not fair, and I don’t necessarily disagree with that assessment. What disturbed me, however, was that a major effort was also underway in Congress at the same time to avoid developing federal law that would preempt state discretion. There is a way to preempt state law action by passing comprehensive, relevant federal legislation. Until that sort of action is taken, however, it is hard to make the argument that states should not act because Congress should. You can not have it both ways.
Similarly, it is hypocritical when governors sign special legislation that precludes certain plaintiffs from bringing suit. If you don’t like municipal lawsuits, there’s a way to deal with that issue. It is ideological, not rational, to treat one industry differently than any other industry. What governor would dare sign a law that says that cities or individuals can not sue car manufacturers for producing defective products? What governor could survive who says you can’t sue doctors or lawyers? You may not like the targets of guns and tobacco, but the discussion ought to be about the underlying principles. This discussion should not be cloaked under objections to excessive attorney general’s powers.
GENERAL SPITZER (to General Pryor): Defining who the client is in one’s capacity as attorney general is not as easy as it was in your representation of Philip Morris. Philip Morris is one corporation, or many subsidiaries, but you send them one bill and they send you back one check. According to the New York Constitution, I represent a diverse constituency. I have to represent the governor, executive agencies, the legislature, the New York Court of Appeals, and, of course, the public. With this in mind, when you say that Mike Moore went into court without a client, I think that’s a questionable charge. The attorneyclient relationship is very different for an attorney general than it is for a private sector attorney with a defined employer. I think Bill, Scott, and I would agree—as attorney general, you have to try to define what the public interest is. It’s not as though there is an individual who comes to you and defines it. This is where ideology plays a role: not politics, but ideology.
MR. WALLACE: General Spitzer is quite right: it is difficult for the attorney general to define who the client is because of the way our state governments are constructed. For the most part, they do not have unitary executives. But when I said Mike Moore didn’t have a client, I was quoting Chief Justice Lee, who is quite familiar with our constitution in Mississippi.
The legal precedents in Mississippi say quite clearly that the agency charged by the legislature with a particular duty is, for all intents and purposes, the state of Mississippi when it is discharging that duty. The attorney general is to represent that agency. If the attorney general, in good conscience, can not do that, he is to pay for somebody else to represent that agency. Our law in Mississippi is, I’m sure, quite different than in other places; in our law, however, the chief justice is correct. When the legislature says the governor controls litigation, and when the attorney general certifies, to the federal government, that it is lawful for the governor to have sole authority over Medicaid litigation, that’s what ought to happen. That is not what happened in our tobacco litigation.
GENERAL PRYOR (to General Spitzer): Elliott, I have great respect for you and the work you’ve done, particularly on law and order issues. Anyone who’s familiar with my record in Alabama would know that the principal focus of my work has been much like your own: the prosecution of public corruption, white-collar crime, and fraud. There is much where we can agree. There were, however, things that occurred in tobacco litigation that you cannot ignore. You claim there was no new law developed—that simply isn’t true.
I went to Chicago a couple of years ago and listened to Mike Moore make his pitch for having us join what was then a very small number of states suing the tobacco industry. He made it very clear: don’t bring your lawsuit as a subrogation case. It was obvious that he was trying to craft new theories in equity. It was also very clear that he thought it best to avoid jury trials—juries had historically sided with the tobacco industry.
In other states, attorneys general went even further. The second state to sue was the state of Florida, and they changed their subrogation law in the legislature in a very deceptive manner. When the changes were later discovered, it frightened the entire business community. There were results in other states that made it very clear that attorneys general were interested in changing the law. The Iowa Supreme Court threw out a Medicaid reimbursement claim. In Vermont, the legislature had to pass a special law to allow the attorney general to proceed. In Indiana, when the trial judge dismissed the entire case, one of our colleagues held a press conference, took the opinion of the trial court, and threw it in the trash can in front of television cameras. Now, that, in my judgment, is not respect for judicial decisionmaking.
To respond to your charge, I did not say that the only motivation here was revenue. It was clearly the main motivation. I say this because I was there. Most of the states weren’t suing until the tobacco industry started talking settlement, and then the momentum was unbelievable. Why? Because of the money. It went to Congress, and the momentum was unbelievable. It got to be so expensive, it collapsed under its own weight. Were the doctors motivated by money and the public health advocates and the many others involved in this suit? I don’t mean to suggest that they were. It is worth noting, however, that they are some of the same people who ended up criticizing this settlement as a sellout. In many cases, they’ve challenged the national settlement.
My question for the panel is this: what do you think about some of the ideas that I’ve raised, about making sure that the process is fair? What do you think about regulating contingency fees for the reasons that I mentioned, and to create the appearance that this is not a corrupt process? What about the appeals bond issue, which was illustrated by Mike’s comments? What about venue rules? Let’s make sure this is a fair process and let’s make sure that we adhere to established tort principles.
GENERAL HARSHBARGER: A month before I was going to bring my lawsuit, the tobacco industry did something interesting—they sued me in federal court. If I had done that, I would have been accused of bringing a frivolous lawsuit, playing politics, and not respecting the state law. These cases clearly raise many questions about lawyers’ tactics. I don’t think, however, that the process here resulted in poor representation for the defendants. They were hardly defended as if they were indigent.
AUDIENCE MEMBER: I was wondering if the panel would comment on contingency fees. Are there are any circumstances in which attorneys general ought to use a contingency fee arrangement?
GENERAL HARSHBARGER: I can only comment on the Massachusetts experience. The tobacco case was one of the few times our office has ever used a contingency fee arrangement. Our policy, under most circumstances, was to use people from our office, rather than appointing private lawyers as special assistant attorneys general. When you do that, though, it is important that there be clear lines of supervision, especially if conflicts arise. My predecessor had used outside lawyers in the asbestos case. It had been done by a bidding process and with a very full review—all a matter of public record.
I used “contingency-fee” lawyers, as well as assistant attorneys general, in the tobacco case because I perceived tremendous legal odds against us. We had to have the legal resources to meet that kind of opposition, and I couldn’t justify putting the AAGs in our Trial Unit on this one case. In 1995, there were very few bidders for our side on this case. Most of the firms in Boston were conflicted out because they represented, in one way or another, one of the tobacco companies, at some point, somewhere. At this point, as everybody knows, there had never been any monetary recovery. For any law firm coming into this case, it was essentially viewed as pro bono. Once they agreed to join the case, we worked very closely with our outside lawyers so that they were monitored and supervised. In all the other cases against businesses, i.e. Microsoft, other AG multistate cases, we have done them all with our own staffs and blended staffs. I think people need to understand this.
In tobacco litigation besides Massachusetts, the contingency fees were arranged by each state. In our state these are matters of public record. Courts of each state determine what is a reasonable fee and what’s not a reasonable fee. This is a matter of law in Massachusetts, no matter what happens in the arbitration process.
It is worth noting that the tobacco companies, as part of the settlement, agreed to pay the attorneys’ fees separately. I’m not going to defend the fee arrangements across the country; I can only speak to Massachusetts…they agreed to pay the fees as part of the settlement. Had most attorneys general ever believed that in any way they were likely to be liable beyond this or that any amount was going to come back and be charged to the state, that would be, in my view, a total breach of good faith negotiations on the part of the tobacco companies. And, I think ultimately, that’s why I hope reason will prevail here. Otherwise there would never have been a settlement—and the tobacco companies know that.
GENERAL PRYOR: Both Eliott and Scott have carefully considered this issue. There were various responses in the states and some of them were not nearly as responsible. In my own state, I appoint lawyers to represent the state, but the governor is responsible for determining how they’re paid. There was a state senator who recently tried to strip my authority to appoint lawyers. The governor and I—and we are from different parties—fixed that problem and restored things back to the way they ought to be. In fact, we went further and made our law more specific about the lawyer-appointing process.
There ought to be checks and balances. I think Scott’s method of taking competitive bids and having the governor sign off on the process is a very good idea. That method would, I think, ensure that these kinds of arrangements are reserved for extraordinary circumstances.
AUDIENCE MEMBER (to the attorneys general): When you’re exercising your discretion as to whether or not to initiate a suit, would you also take into consideration legislative approval of your decision? The way the tobacco industry is structured and the way that the settlement was structured, there’s a high probability that the cost of the settlement went straight to your constituents in the form of price increases. Isn’t that a relevant consideration when deciding whether or not to initiate a suit? If you’re trying to recover Medicare fees, you could enact an extra tax, such as a state tax on tobacco products, and then you don’t have to have a large contingent amount taken from recovery back to the state.
GENERAL SPITZER: In initiating any case, whether it’s an effort to recover a claim against an individual who owes the state money or a more expansive claim, I undertake a complete analysis of the implications of the case. I ask myself, when seeking money damages or injunctive relief, what the impact will be. As with any litigation, you try to understand where you will be at the end of the day and who has been affected.
The likelihood that I would consult the legislature in this process is rather slight, however, because I do not believe it is appropriate to consult with political bodies before I initiate state litigation. This would mix the political and the legal, which I’m very hesitant to do. I do consult with executive agents who have relevant factual information. These agents have a necessary relationship with my office in the sense that they are occasionally our clients; there are reverberations or lawsuits that we file, for example, as part of our relationship with the Department of Environmental Conservation.
GENERAL PRYOR: I had a unique experience in this area. When I refused to join the tobacco litigation and said what my feelings were about this issue, I went one step further. I went to the legislature and proposed the largest tax increase, I think, in the history of the state of Alabama, a tax on tobacco products. The legislators had told me they wanted this money to fund juvenile justice reforms and other projects, so I said here it is, vote on it.
The reception to this proposal was much chillier once I got to the legislature. It passed in the Alabama House of Representatives, but then died in the Alabama Senate. Many legislators wanted this money, but they didn’t want to be held responsible for the price increases that would follow.
AUDIENCE MEMBER: Large amounts of money change hands in the form of attorneys’ fees. The beneficiaries of litigation among lawyers are very frequently determined by highly discretionary and largely invisible rulings on such subjects as certification of a class, designation of class representatives, discovery rulings, and the like. How long do you think it will be before we have a very serious judicial scandal as a result of these developments?
MR. WALLACE: Don’t be under the illusion that attorney general-driven cases are class actions. The whole point of attorney general litigation is that you don’t have to go through the trouble and procedural protections that are inherent in class action suits. You don’t ask whether the class is manageable, you don’t ask whether the claims are similar. If the attorney general sues on behalf of the entire state, all of those steps are skipped, and you go directly to the merits of the lawsuit. The attorney general may or may not have authority to do this in particular cases, but either way, it’s not a class action.
GENERAL HARSHBARGER: This is totally disingenuous. The attorney general ultimately is accountable to people. Whether you agree or don’t agree with the attorney general in this kind of an action, the same procedural motions and rules apply for AG actions as for anyone else and judges certainly will review it. The whole first year and a half of tobacco litigation was devoted to fighting procedural issues and motions in court. That’s not related to your wider point, but it speaks to whether the tobacco suit was or was not a class action.
I’ve heard the arguments from businesses and others that there is no protection that exists in terms of class actions brought by anyone. There is nobody really that monitors those. We all have seen the problems of class actions where the plaintiffs never got a penny! So I think that that can’t be laid at the feet of the attorneys general in this area.
As to your other point, you are going to have to look at these cases on a casebycase basis. I know what happened in Massachusetts. I know how we structured our case and how we tried to work out an arrangement, and how public it was and continues to be. You can still see what the documents are and what’s going to happen, and people can judge on that evidence.
AUDIENCE MEMBER: A question about contingency fees. It would seem that when you enter into a contingency fee agreement, you’re trading off services on the one side and a percentage of a valuable claim—choses in action, as lawyers would say—on the other side. That’s an allocation of state property. Do you believe attorneys general have the authority, under state law, to dispose of property of the state? If so, has the legislature created appropriate rules in this area? If they have, who can participate and bid on those assets if you’re putting them up for sale? Late in litigation, when it looks like there’s clearly going to be a big reward, that’s a very important question.
GENERAL SPITZER: As Scott said, one of the underlying misconceptions about the tobacco settlement is that the attorneys’ fees are coming out of the public’s pocket. That is not the case. They defendants have agreed to pay these fees. Now, you could argue they would have paid more in the settlement, but then you get into negotiation theory and pure hypotheticals. The tobacco companies are paying the attorneys’ fees and, therefore, these fees are not state property. I don’t say this to justify the fees. I never would have entered into those agreements and I criticized my predecessor for the terms, bidding process, and determination method his office used for choosing attorneys. This said, it is within the attorney general’s authority, pursuant to the state constitution, to handle the legal affairs of the state and to enter into these relationships.
MR. WALLACE: In Mississippi, our constitution places limits on the authority of any officer of the state government to alienate any asset of the state. Whether that has actually occurred is not clear because nobody has tested it. In many of the states, the attorney fee agreements are matters of public record. To the best of my knowledge, the attorney fee agreement in Mississippi is not. I have never seen it. I don’t know anybody who has. It’s not clear exactly what happened.