AG Watch

In just two weeks, the Supreme Court will hear the oral arguments in Massachusetts v. EPA, the first in what might become a series of AG-led global warming suits.

On November 21, the Federalism Project will host a panel discussion of the case. The panel will include Jonathan Adler and Lisa Heinzerling, who authored briefs in the case, as well as Edward Warren and Barry Rabe, prominent authorities in the field of environmental law. You, faithful reader, are invited. Please RSVP at your earliest convenience.

Election junkies and law junkies can now their fixes in one place: Point-of-Law is holding an Election Roundtable discussion.

Of course, AGs are elected officials, so AG Watch has thrown in our two cents.

According to Jerome Carr’s motion to submit his amicus curiae brief in Massachusetts v. EPA, which the Supreme Court will hear on November 29th, Mr. Carr tried to contact the Massachusetts AG’s office in order to get help submitting his brief, but was redirected to the Sierra Club’s attorneys. The truth trumps any joke AG Watch could make.

The AEI Federalism Project will host a panel discussion of Massachusetts v. EPA on November 21, from 2-4 p.m. Registration is open. You may register with us directly.

On Bloomberg.com, Jonathan D. Salant provides a must-read look at the nationwide political fallout in AG races after Eliot Spitzer’s attorney generalship.

Why are AG races receiving such attention? Mr. Salant writes, “Business groups say overly aggressive state law-enforcement officials are driving up costs, making it harder to compete and forcing companies to shed jobs.” Mr. Salant also quotes John Engler, former governor of Michigan, saying, “Eliot Spitzer has done more to raise costs than most legislation passed by legislatures across the country.”

That is the second most distressing item in the column. Most distressing, of course, is the use of the word “Spitzerism,” which makes both philologists and rule-of-law types shudder.

Once again, a cadre of AGs and tobacco makers have leagued up to decide national policy. They don’t want cigarette brands to have sweet and/or alluring names because, they insist, sweet and/or alluring names target children. The settlement is only between R.J. Reynolds and 39 AGs at present, but we can guess that others will soon climb aboard.

At the present pace, NAAG settlement agreements will soon run everything from international trade bargains to national financial policy to MLB commissioner duties. Why waste time passing legislation through national democratic institutions when parochial litigacrats can decide everything at a whim?

What is the attorney general? What is the duty of the office? And should we worry that these questions are surfacing in an election race between would-be attorneys general?

The fascinating (to political theorists) race in Connecticut between Robert Farr and Richard Blumenthal has brought the very nature of the post to the fore as a campaign issue. As professional scrutinizers of AGs, we’re glad for the assistance—and by such qualified experts—in the What The Heck Are The AGs All About Department.

Pay attention to Connecticut, as this campaign will most likely shed much light on the future role of state AGs everywhere.

California et al. just sued the auto industry because, according to the complaint, the automakers harmed California. As AG Lockyer’s press release implies, this action is merely a tactical maneuver in a larger battle between California and the nation regarding emission standards preferences.

That debate centers on federal preemption questions. The Federalism Project’s Federal Preemption event answered many of those questions and raised many more.

When USA Today runs an article outlining the AG litigulatory MO—in this case Bill Lockyer’s investigation of Hewlett-Packard—one starts to hope that the jig is up.

Lockyer’s law-less approach is clearly suspect in the article, “There’s no one California law against the practice, called ‘pretexting.’ But Lockyer’s staff is considering prosecuting under fraud laws, including those that prohibit identity theft and unauthorized use of computer data.”

And the article captures the equally pertinent political score, “But independent tech analyst Rob Enderle says Lockyer may be going after HP mainly for publicity in an election year.”

HP is headquartered in California, making this AG sweep at least somewhat less egregious than most. However, the article also places the investigation squarely in the legal-economic context that undermines all AG claims to righteousness: “The Department of Justice, FBI, House Energy and Commerce Committee, and Securities and Exchange Commission also have launched inquiries.” So, while Lockyer and Massachusetts AG Tom Reilly roust about for loose change in Hewlett’s couch, they also interfere with an integrated federal investigation.

And this is by design, folks. Enjoy your weekend.

35 state attorneys general have “offered” anti-smoking Public Service Announcements to movie studios.

Anything anti-smoking makes for popular policy. And unless the worst libertarian suspicions are confirmed, the AGs have not encroached on the studios’ liberties.

But why are AGs injecting themseves into the movie making business at all? Even if this were a state-by-state policy question—and we rather doubt that it is—shouldn’t governors and state legislators be handling this sort of policy making? Since when do AGs handle policy making, Hollywood or elsewhere?

If the AGs need to concern themselves with Hollywood, perhaps they could figure out where all of Brendan Fraser’s good scripts went.

In September 2005, AG Watch described the mess of chickens and litigation moving between Oklahoma and Arkansas. The situation has only deteriorated since then. Both sides have lawyered up and the interest group moneyfights have begun in earnest.

However, recent news items have captured one phoenix that seems to be rising from the smolder: as interstate environmental litigation proliferates, even the aggressors have started to appreciate the benefits of one national rule for interstate issues.

In a recent Stories That Matter piece, Oklahoma’s AG Drew Edmonson, the bearer of the suits against Arkansas chicken farmers, says of the interstate environmental suits, “This is a national problem, and there really should be a national solution applied equally to everyone.”

In the Washington Post’s full account of the ArkLahoma battle, New York’s Eliot Spitzer—himself no slouch at suing out-of-state for environmental causes—confessed, “Long term, states cannot supplant the role of the federal government in addressing these issues,” he said.

Of course, these AGs have their own environmental policy preferences in mind when they suggest a national fix, but the fact of their mutual emphasis on a national standard for interstate concerns signals (hopefully) the beginning of the end of states’ Attorneys’ General extraterritorial romp across the U.S. Or perhaps AG Watch has set our hopes a little too high.

Today, Diane Levick of the Hartford Courant gives us a heads-up on what might be the next big AG SuperLawsuit Sweep. St. Paul Travelers, a Minnesota-based insurer, seems about to join the Hartford Financial Services Group as targets of Connecticut Attorney General Richard Blumenthal’s cleansing of insurance call center identification practices. According to the article, several state attorneys general have had their litigulatory hackles raised because “some insurers’ service centers did not identify their company name when fielding customer calls at the request of independent agents.”

While Mr. Blumenthal may have discovered a potential principal-agent problem, Ms. Levick notes, “It’s unclear how deeply or often consumers were harmed by not realizing they were talking directly to insurers, and how far back the problem started.” Indeed, Ms. Levick reveals that Mr. Blumenthal “wouldn’t provide specific examples of consumers being hurt, or comment on whether service centers tried to discourage consumers from filing claims when they called for advice.”

General Blumenthal claims, “The brokers certainly did not do their job, and the harm was higher premiums.” Elsewhere in the article, however, it becomes clear that agents joined this call center arrangement in order to reduce their costs. Is it Mr. Blumenthal’s claim that none of those lower costs made it to consumers? This is surely a difficult econometrics problem, but without any sort of actual economic analysis, Mr. Blumenthal’s allegations remain empty .

The absence of proof of real harm is not the only suspect piece of Blumenthal’s puzzle—vaguery edifies vaguery in his legal model: “Shifting customers to the service centers is not illegal, but deception is.” Deception, AG Watch agrees, is a nasty business, but “deception” implies an intent to harm, which these crimes manque may lack. Levick describes the matter as “one more example of how investigators have raised alarm over behavior the industry considered acceptable.” These companies were simply doing what they had been doing, and no one had balked before. Of course, attitudes toward certain behaviors may change over time, but that cannot make those behaviors illegal ex post facto.

Consider as well that the appearance of jurisdiction in these cases is at least as misleading as the call service itself. Both Hartford Financial Services and St. Paul Travelers have strong operational ties to Connecticut (Hartford, of course, headquarters there), but the real crime here—if any crime actually occurs—is committed by Connecticut agents against Connecticut consumers; the seemingly independent agents, after all, are the ones who are redirecting their phones. But if the Blumenthal went after the Connecticut-based agents involved, he would not reap deep-pocket profits. And those profits, after all, are the object of this pursuit.

Such a legally and economically flimsy strategy shouldn’t provide Connecticut with a blank settlement check, nor should it allow Connecticut’s AG to design every detail of nationwide insurance practices.

In the Cincinnati Enquirer today, James McNair offers an excellent description of one company’s journey through the fifty-state settement process. Omnicare Inc., a pharmaceutical supplier from Kentucky, has been hit with Medicaid billing practice investigations by Maine, Michigan, New York, and Ohio–-as well as the the U.S. Attorneys office.

Thus far, Omnicare has settled with Maine and New York (whose AG Eliot Spitzer was the subject of a recent Federalism Project book event). Omnicare has also set aside about $54M for the Michigan suit (though no settlement has been made). And we can safely assume that more states will follow.

Between the lines of the article, one unstated premise becomes clear: the uncertain and circuitous AG-by-AG remedial process brings a terrible social cost—-a cost that we’d be smart to reevaluate, even if every company accused of Medicaid fraud were slamdunk guilty. The intergovernmental structure of Medicaid may necessitate a burdensome administrative regime (which raises some good questions for another day), but that is no justification for a counterproductive litigulatory scheme by which “first sue, first serve” becomes the gameplan for our national healthcare and pharmaceutical activities.

If our fifty-one governments want to be in the business of pill price-fixing, at the very least they should find a more efficient way of fixing the prices than by redirecting money through piecemeal assaults by state attorneys general.

South Carolina’s AG Henry McMaster frames the benefits and difficulties of contingency fees nicely: without outside help, the AG’s office simply could not provide adequate legal service in many cases; but too often, states become a leveraging tool for mercenary law firms’ sue-n-settle attacks on vulnerable industries.

As the article notes, General McMaster has introduced a model contract in order to balance these extremes. The sliding pay scale of the contract constricts the number and quality of cases that firms bring to the SC AG, allowing South Carolina to bring cases that the AG alone could not handle, but only the best cases—that is, those with the clearest violations, rather than the deepest pockets.

Earlier this year, Rhode Island Attorney General Patrick Lynch made a splash when a jury found some paint companies liable to clean up all of the lead-based paint in Rhode Island—a billion dollar job. Curiously, DuPont was let out of the tort suit (before verdict) when it gave $9M to the Children’s Health Forum, a nonprofit organization focused on preventing childhood exposure to lead.

In June, it came to light that DuPont had given some campaign cash to General Lynch.

Now, it appears that Children’s Health Forum and DuPont are kissin’ cousins, and have been for quite some time.

Mr. Lynch’s paint industry dealin’ and litigatin’ and litigulatin’ need a whitewash. The twenty-eight-years-after-the-fact squeeze on paint manufacturers was bad law and terrible policy, but the subsequent revelations add strokes of malice to the already dirty scene.

Power corrupts, but post facto extraterritorial jurisdiction corrupts absolutely.

NY AG Eliot Spitzer has just settled with Waddell & Reed, Inc., a Kansas City-based mutual fund manager. The press release notes, “The Waddell & Reed agreement is the 19th settlement since the Attorney General’s Office began the probe of improper mutual fund trading activity in July 2003. To date, these settlements have resulted in more than $3.4 billion in restitution for investors.” [low whistle] It’d be hard to deny that Mr. Spitzer accomplishes what he sets out to do. But what is it he sets out to do, exactly, and how does he get it done?

Brooke A. Masters of the Washington Post has written a book about Mr. Spitzer, Spoiling for a Fight: The Rise of Eliot Spitzer, which addresses these questions and more…and we’re gonna have a BOOK FORUM! Ms. Masters and Federalism Project director Michael Greve will discuss the book and Mr. Spitzer’s redefinition of the role of attorney general. The Honorable William H. Pryor Jr., of the United States Court of Appeals for the Eleventh Circuit, and a former attorney general of Alabama, will moderate.

Mark your calendar: August 7, 2006; 2-4 p.m.

See you there!

For several years, the U.S. DOJ has prosecuted and settled antitrust lawsuits against several international DRAM computer chip manufacturers. The DOJ’s Thomas O. Barnett, Acting Assistant Attorney General in the Antitrust Division, emphasized that the suits “prosecute and deter cartels that harm American consumers.” In other words, when it comes to international antitrust, the United States Department of Justice has got your back. So far, settling individual DRAM makers have paid more than $730M in total fines.

Yesterday, a Wall Street Journal editorial (”When the Chips Are Down,” July 18, 2006) described the AGs role in the DRAM cases: “Enter the state AGs, who have now ridden in on their taxpayer-funded horses to shoot the wounded.” 34 state AGs, you see, have taken it upon themselves to form a “class” of in order to recoup damages. A consumer class action already exists.

We don’t question the guilt of the DRAM cartel, but three suits against the same companies for the same crime worries us. Are three bouts of litigation necessary or desirable?

Perhaps a big book about international antitrust would help us puzzle this stuff out.

The AG Sue’n'Settle Scheme would not be complete without the public relations imbalance—the suing state AG looks like law while the sued firm appears criminal.

New Mexico AG Patricia Madrid has taken the PR leverage much much further. Here are the steps that she added to the scheme:
1. Sue Microsoft.
2. Take big settlement money from Microsoft.
3. Use MS settlement money to buy “consumer awareness” fliers for mass mailing.
4. Choose a consumer topic unrelated to Microsoft.
5. Prominently display [insert Attorney General’s name] on the flier.
6. Wait until election time.
7. Run for office.
8. Send those fliers.
9. Say that your opponent does it too.
10. Drive AG Watch bonkers.

The 4th of July is a traumatizing time to be in DC; watching people cheer as the government literally blows up their tax dollars can’t count as a holiday, can it?

This year, we got an early taste of the Confiscate-Waste-Repeat cycle when Robert Farr, the challenger in the Connecticut AG race, released an ad on July 3 that criticized sitting AG Richard Blumenthal for his “silly suits.” In the ad, Mr. Farr suggested that Mr. Blumenthal’s lawsuits have cost Connecticut more in litigation fees than they have won the state in settlement receipts.

In response, Blumenthal said “Money is hardly the only criteria as far as fighting for the public interest” but then estimated that his lawsuits brought in 13 times as much as was spent on the suits.

The AG race boils down to this perverse question: How efficiently can the Connecticut Attorney General’s office fleece the average American citizen? And, efficiency aside, the money these two are bickering about goes either to lawyers or to politicians. So even Conn men and women lose out. When the effectiveness of the Attorney General is measured by lawsuits, state legislators and attorneys (General and generally) are the big winners. Citizens, as per usual, lose out.

Texas AG Greg Abbott settled a lawsuit with Baxter Healthcare Corporation, “a corporation organized under the laws of Delaware with its principal offices in Deerfield, Illinois.” Per the terms of the settlement, Texas will receive $8.5M, but will kick $3,792,000 to the U.S government (because Medicaid involves everyone). Texas will also kick “a percentage” to Ven-A-Care of the Florida Keys, the real plaintiffs in this lawsuit (and, as we’ll discuss, many others).

Not surprisingly, the settlement loves itself: “The STATE has concluded that this settlement is in the public interest.” Which state? The settlement means Texas, but consumers, shareholders, and employees from four states are directly involved and citizens from all fifty are affected.

More disheartening than even the mess-traterritoriality of the suit, though, are the perverse incentives that have been created by the Medicaid whistleblower rules. Ven-A-Care, a one-time pharmacy, seems to have become a full-time whisleblower; and law firms specializing in Medicaid whistleblower suits have sprung up as well.

Moreover, states (led by AGs) have fed the litigulation monster by continually suing and settling over pill-supplier pricing practices. We’re no champions of drug-suppliers sharping the Medicaid reimbursements system, but we don’t see why surplus-skimming lawsuits (and lawyers) are preferable.

Retroactive price-fixing via state litigation doesn’t ameliorate the problem—though it certainly lines more lawyers’ wallets with graft. If the states want to limit their pharmaceutical spending, they can do it up front; a back-end race among the states’ Attorneys General to raid the pharmaceutical piggy bank should, and eventually will, make us all sick.

Walter Olson at Point-of-Law brings some good news: the Brattle Group’s independent assessment of the MSA has now been brought to light. The Competitive Enterprise Institute and the Evergreen Freedom Foundation have won an open records case in Washington and now the full report and much more can be found on the CEI’s website.

If you are too lazy to get through the 150 pages of tobacco econometrics, this snippet of the decision says it all: “The Firm, therefore, concludes that MSA disadvantages were a significant factor in the Market Share Loss.” Mark it, folks: the whole point of the inquiry was to measure whether or not Big Tobacco was harmed by the MSA, and the NAAG argument hinged on Big Tobacco being unharmed.

Your state attorney general has cartelled your state government and Big Tobacco. Good gravy.