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Trial Lawyers Inc.: Attorneys General — A Report On The Alliance Between State AGs And The Plaintiffs' Bar 2011


Trial Lawyers Inc.: Attorneys General — A Report On The Alliance Between State AGs And The Plaintiffs' Bar 2011

October 25, 2011
Legal ReformOther

Personal-injury lawyers, collectively, are among the biggest of big businesses, so much so that we at the Manhattan Institute have dubbed them “Trial Lawyers, Inc.”[1] It’s no secret that this group of attorneys is a powerful political force, exerting pressure on legislators and elected judges alike.[2] Few realize, however, just how in bed the litigation industry is with the very officials we entrust to enforce the law itself—the attorneys general of the various states. In fact, our state attorneys general have become not just allies of the trial bar but, in many cases, indispensable to developing Trial Lawyers, Inc.’s new lines of business. State AGs make possible the payment of windfall fees to their allies in the plaintiffs’ bar, whose lawyers in turn gratefully fill the officials’ campaign coffers with a share of their easily obtained cash. This report tells the story of the questionable bargain between the trial bar and the states’ top law-enforcement officers.

In understanding just how and why state attorneys general work with the trial bar, it’s important to realize that, unlike the U.S. attorney general, who is appointed by and accountable to the president, most state attorneys general are answerable to no higher official, having been chosen by the public at large.[3] The statewide campaigns they wage demand rich war chests. Moreover, winners often use these positions as stepping stones—as in the cases of Rhode Island senator Sheldon Whitehouse; New York’s former governor, Eliot Spitzer; and Connecticut senator Richard Blumenthal[4]—requiring further financial support.

To subsidize their ambition, many state attorneys general have embraced the plaintiffs’ bar over the past two decades in a symbiotic relationship that has enriched each at the expense of the general public and the rule of law. The large-scale trend dates back to 1994, when Mississippi trial lawyer Richard Scruggs reached out to his state’s attorney general, Mike Moore, a fellow native of Scruggs’s hometown of Pascagoula.[5] Scruggs’s idea was to have Mississippi sue the tobacco companies—and retain his own small firm to litigate the case. But that was not the nub of the problem, the dubious merits of the case aside. It lay in the fee arrangement: Scruggs and his firm would not get hourly fees, which would reflect the amount of work they performed—the normal arrangement between governments or companies and the private lawyers they retain. Instead, the Scruggs firm contracted for a share of the proceeds of the suit, through a contingency-fee arrangement roughly parallel to those regularly arranged between plaintiffs’ lawyers and private individuals, who tend to lack the up-front funds to pay lawyers by the hour. States not only have such resources; they have the legal sophistication to determine whether a case under consideration has a chance of prevailing, unlike private citizens, who must turn to self-interested plaintiffs’ lawyers to make that evaluation.

When the smoke cleared, all 50 state AGs signed on to some version of Scruggs’s scheme.[6] The money involved was so great that even AGs from tobacco-growing states felt pressure to come on board, so as to ensure that their citizens got “their share” of the proceeds. And under the contingency-fee arrangement, a significant portion of each state’s share went to the lawyers themselves. Scruggs himself took in over a billion dollars,[7] and though he is now serving time in federal prison for attempting to bribe a judge in an unrelated case,[8] the litigation business model that he developed lives on. Such arrangements undergird many of Trial Lawyers, Inc.’s most lucrative modern business lines, including litigation against pharmaceutical companies and shareholder lawsuits against companies for alleged securities fraud.

While the contracting out of the state’s business to plaintiffs’ lawyers for a share of the proceeds is the most obvious example of the unholy alliance between attorneys general and the trial bar, it is hardly the only way that lawyers benefit from friendly relations with states’ top prosecutors. Even if not contracted out to private lawyers on a contingency basis, civil lawsuits and criminal investigations launched by state AGs can offer handsome rewards to lawyers involved in parallel litigation—as highlighted in the recent firestorm over the huge out-of-state campaign-donation inflow, from tort lawyers and others, received by the nation’s longest-serving state attorney general, Tom Miller of Iowa, after he assumed control of multistate litigation over home foreclosures.[9] Even when state lawsuits ultimately lose, attorneys general can drive up settlement values for private lawsuits alleging wrongdoing by businesses by placing the state government’s imprimatur on the legal theories floated. The ratchet effect that state AGs’ investigations can bring to civil lawsuits was highlighted powerfully in the cooperation between Scruggs and current Mississippi attorney general Jim Hood, who, in the wake of Hurricane Katrina filed lawsuits attacking insurance companies for simply insisting on the terms of their policies.

Notwithstanding the unsavory alliance between trial lawyers and state AGs, the overall civil-litigation landscape in America continues to improve. In 2009, the most recent year for which data are available, tort costs—measured as the sum of all payments in tort litigation paid to individuals and attorneys, plus administrative costs—fell as a percentage of the economy for the sixth consecutive year (see graph).[10] In a series of major decisions, the U.S. Supreme Court recently enforced a federal law upholding mandatory arbitration clauses, found that another federal law preempted state litigation related to injuries attributed to childhood vaccines, found that a federal regulatory scheme preempted state-led “public-nuisance” lawsuits trying to force the adoption of policies intended to combat global warming, and made it more difficult to assert speculative employment-discrimination class actions.[11] In addition, many states have enacted varieties of tort reform that seem to be paying dividends.[12]

Unfortunately, the tort reform record as it relates to reining in abusive state attorneys general is rather limited. Only ten states have enacted reforms similar to the American Legislative Exchange Council’s Private Attorney Retention Sunshine Act, which mandates public disclosure of contractual relationships between private lawyers and states.[13] The degree of transparency of such arrangements in ten other states—Georgia, Idaho, Iowa, Michigan, Mississippi, Nebraska, Rhode Island, Tennessee, Vermont, and West Virginia—received failing grades from the American Tort Reform Association.[14] Clearly, state attorneys general are the outliers in a broad landscape of reform. Here’s hoping that this report can shed light on how state AGs work to further the trial bar’s agenda and how thoughtful reforms might counteract such trends.