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Trial Lawyers Inc.


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

 

Trial Lawyers Inc.: Attorneys General
A Message from the Director
Introduction: Tobacco
Pharmaceuticals
Securities and Finance
Public Nuisance
Insurance
Leadership Team
Conclusion
Other Resources
Media
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ARTICLES

State-Sponsored Lawsuits Are Trial Bar's New Cash Cow, James Copland, Washington Examiner, 10-25-11
Obama's CFPB Nominee Abused Private Attorney Contracting in Ohio, James Copland, Washington Examiner, 10-25-11


WEBCAST INTERVIEW

James Copland on Wall Street Journal Live
He discussed his new report, Trial Lawyers Inc.: Attorneys General on 10-27-11.


RADIO

James Copland appeared on the following radio programs to discuss his new report, Trial Lawyers Inc.: Attorneys General:
FM News Talk 97.1's "Randy Tobler Show," 10-29-11
WABC's "John Batchelor Show," 10-27-11
WTPL's "Bulldog Live with Brian Tilton," 10-26-11
SBA's "Small Business Advocate with Jim Blasingame," 10-26-11


VIRTUAL EVENT

Honorable Edwin Meese, James Copland, and Professor Lester Brickman discussed Trial Lawyers Inc: State Attorneys General in a nationwide conference call. View the event.


IN THE NEWS

Hood's No-Bid Contracts Criticized, Madison County Journal, 10-27-11
Report Details The Ties That Bind AGs, Trial Lawyers, Forbes, 10-25-11
Miller Denounces Report Ranking Him Among Friendliest To Trial Lawyers' Agenda, IowaPolitics.com, 10-25-11
Politics New Report Exposes Cozy Relationship Between State AGs and Trial Lawyers, The Blaze, 10-25-11
McGraw Criticized in National Report on State Attorneys General, West Virginia Watch Dog, 10-25-11
Hood Says Political Foe Abused His Office at DPS, Picayne Item, AP, 10-25-11
Report: Obama Nominee, Some AGs Too Close To Plaintiffs Bar, Legal News Line, 10-25-11
State Attorneys General Rake in Trial Lawyer Cash, Dole Out Contracts, Watchdog.org, 10-25-11

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INRODUCTION: TOBACCO

JUSTICE FOR HIRE

The Origins of the Trial Bar’s Cozy Relationship with
State Attorneys General

 


By the 1990s, strong evidence had accumulated that smoking caused lung cancer, emphysema, and a host of other ailments.[15] A string of sterner and sterner warnings from the U.S surgeon general’s office about cigarettes’ potential health effects had by then rendered tobacco companies personae non gratae,[16] and the marketing efforts of cigarette manufacturers mostly generated public scorn, particularly those that seemed to target minors.


Because evidence had begun to emerge that the companies had known of smoking’s dangers and addictiveness a good bit earlier than they’d let on,[17] tobacco companies began to look like easy targets for litigation. Yet winning verdicts proved elusive. Under general tort-law principles, individual tort claimants cannot seek compensation for injuries caused by inherently dangerous products[18] unless they were inadequately warned,[19] but federally mandated warning labels had existed on every pack of cigarettes since the 1960s.[20] Also, tobacco companies fiercely defended themselves against product liability actions, such that making individual smoking claims was an expensive and risky proposition. Furthermore, aggregating health-related tobacco claims into class actions was usually impossible, since every person’s health profile and smoking history is so individual that those seeking to take legal action lack the “commonality” that members of class actions must have under Federal Rule of Civil Procedure 23.[21]

 

Scruggs Hatches a Plan


In the face of these constraints, in 1994 Mississippi asbestos lawyer Richard “Dickie” Scruggs approached his state’s attorney general, Mike Moore, a fellow native of the small town of Pascagoula, with a scheme[22] that would transform the relationship between state AGs and the plaintiffs’ bar. The legal theory concocted by Scruggs and Moore was ingenious: that tobacco companies were obliged to compensate the state for Medicaid expenses stemming from smoking-related injuries.[23] Their reasoning was dubious, given authoritative estimates that states’ excise taxes on cigarettes exceeded the cost of treating smoking-related illnesses.[24] Like the legal theory that Moore and Scruggs advanced in the tobacco litigation, its fee arrangement was both novel and dubious. Rather than paying outside counsel an hourly rate, as state prosecutors’ with insufficient internal manpower or expertise ordinarily do, Moore agreed to pay Scruggs and other retained private attorneys a contingency fee—allocating to the lawyers for hire a share of the state’s proceeds in any recovery. In the tobacco suits, several states’ settlements reimbursed lawyers at an effective rate of over $10,000 per hour[25]—up to $92,000 in Texas[26] —with over $30 billion going to private attorneys overall, and a reported $1.4 billion flowing to Scruggs individually.[27] Such unprecedented sums represent simply the enormous size of the settlements, rather than the volume of work performed.


The opportunity to score political points by taking on a reviled industry and to fill strained state coffers made followers of top state prosecutors nationwide: eventually, all 50 states signed on to the litigation and entered into a settlement agreement with cigarette manufacturers.[28] (Some state attorneys general went so far as to lobby their legislators to change existing law so that they and their states could get in on the deal.)[29]


Some of the money that flowed to private lawyers found its way back into the campaign chests of the state AGs who had hired them. Scruggs made the arrangement worth Moore’s while: he not only contributed more money to Moore’s campaign than anyone else but flew the attorney general to campaign stops in his private jet.[30] Similar tales abounded in other states, which typically hired local counsel to join the Scruggs effort. The attorney general of Kansas at the time, Carla Stovall, hired her former firm, Entz & Chanay, as “local counsel” in the settlement negotiations—and, later, received sizable campaign donations from her local colleagues.[31] In one extreme case, former Texas attorney general Dan Morales pled guilty to federal corruption charges for his role in attempting to offer a contract worth hundreds of millions of dollars in contingency fees to a plaintiffs’ bar ally and for converting campaign contributions to personal use.[32]

 

An Evolving Partnership


In the years since the tobacco litigation, contingency-fee arrangements of the sort concocted by Scruggs and Moore have come to define the relationship between state AGs and the trial bar. State attorneys general and their litigation-industry allies have continued to mine the Medicaid vein, outsourcing the people’s work to the plaintiffs’ bar in scores of health-care-related suits. The two financial collapses of the last decade or so have offered state AGs a host of opportunities to pursue related litigation and farm it out to Trial Lawyers, Inc., including shareholder lawsuits as well as others premised on various theories of consumer fraud. Though much of this litigation and enforcement has been at cross-purposes with federal schemes, some of it is actually being encouraged by federal lawmakers influenced by the trial bar to give state AGs the power to enforce new federal laws—in effect, creating a new revolving door of litigation opportunity.


Moreover, state AGs have offered benefits to plaintiffs’ attorneys beyond providing employment and the potential for huge fees. In moving against companies both civilly and criminally—as Eliot Spitzer did against the financial sector a decade ago, as Mississippi attorney general Jim Hood did against insurance companies in the wake of Hurricane Katrina, and as Iowa attorney general Tom Miller is doing against the mortgage industry today—AGs place the state’s imprimatur on novel theories of corporate culpability and thus raise the value of legal claims.

 

AN ETHICAL MORASS

The financing of private litigation by contingency fees—in which lawyers advance their legal services to plaintiffs in exchange for a share of any proceeds from a judgment or settlement—is standard American practice.[33] In the context of litigation on behalf of state governments, however, contracts paying private lawyers’ contingency fees raise a host of ethical quandaries.


To begin with, in many instances the lawsuits do not originate with the state officials; rather, private attorneys approach state attorneys general with ideas.[34] Thus, private individuals with their own economic interests are influencing state law-enforcement priorities. Moreover, much of the litigation farmed out on a contingency-fee basis arises not from a violation of a clear legislative command but from some regulatory impulse culminating in a financial penalty more like a tax or a fine than a payment of damages to an injured party. In essence, policymaking is being usurped by state attorneys general at the behest of self-interested private parties.


Although they style themselves instruments of the state and its policy goals, firms that enter into contingency-fee arrangements actually create conflicts between their otherwise legitimate desire to maximize financial returns and the state’s obligation to serve the general welfare, which often entails a balancing of interests and of short-term considerations against long-term ones. In many instances, state AGs essentially relinquish authority over the course of litigation to the private lawyers hired. The prospect of campaign contributions derived from the hard bargains that these private attorneys drive threatens to cloud at least some AGs’ consciousness of the public interest.


Even when some portion of the proceeds is dedicated to programs serving the public welfare—such as the smoking-cessation campaigns funded by the tobacco settlements—it has often been state AGs, rather than the legislature, who have decided, sometimes in concert with their litigation-industry attorneys, how such monies are to be allocated. Too often, the “charities” funded through such settlements have tended to benefit state AGs’ political careers—or the litigation interests of their outside counsel.[35]


Finally, the very size of the cases that AGs pursue with the help of plaintiffs’ lawyers guarantees that the fees collected will be disproportionate to the effort expended and will represent a huge diversion of funds that belong with the government, if they belong anywhere. As it happens, these sums too often go to AGs’ past and future campaign donors, creating at least the appearance of pernicious “pay to play” arrangements. Even so, a number of states have no formal process for overseeing private attorney contracts, and many state attorneys general have doled out work on a no-bid basis.[36]

 


The increasing value of state attorneys general to the private plaintiffs’ bar is strikingly shown by the growth in Trial Lawyers, Inc.’s contributions to the Democratic Attorneys General Association (DAGA) over the last several electoral cycles (see graph). Some Republican AGs have also shown a willingness to farm out the state’s work to private attorneys on a contingency-fee basis, among them former Alabama attorney general Troy King and former South Carolina attorney general Henry McMaster; and present South Carolina attorney general Alan Wilson, Utah attorney general Mark Shurtleff, and Virginia attorney general Ken Cuccinelli. Trial Lawyers, Inc. plays no favorites beyond a devotion to its own bottom line.


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15. See generally Richard Kluger, Ashes To Ashes: America’s  Hundred-Year Cigarette War, The Public Health, And The Unabashed Triumph Of Philip Morris (1996) (comprehensive history of the American tobacco industry).
16. See id.
17. See id.
18. See Restatement (Second) Of Torts § 402A cmt. k (1965) (discussing “unavoidably unsafe products” which are “quite incapable of being made safe for their intended and ordinary use” pointing out that “such a product, properly prepared, and accompanied by proper directions and warning, is not defective, nor is it unreasonably dangerous”).
19. See id.
20. See Federal Cigarette Labeling and Advertising Act of 1965, Pub. L. No. 89-92, § 4, 79 Stat. 282–83 (1965) (codified as amended 15 U.S.C. §§ 1331-1340 (2006)).
21. Fed. R. Civ. P. 23.
22. See Walter K. Olson, The Rule of Lawyers: How the New Litigation Elite Threatens America’s Rule of Law 33-39 (2003).
23. See id.
24. See U.S. Congressional Research Service, Cigarette Taxes to Fund Health Care Reform: An Economic Analysis i (94214 E, Mar. 8, 1994), by Jane G. Gravelle & Dennis Zimmerman, available at http://www.forces.org/evidence/files/crs-tax.htm (“Midrange estimates based upon likely assumptions suggest net external costs from smoking in the range of 33 cents per pack in 1995 prices, an amount that by itself is too small to justify either current cigarette taxes or the proposed tax increase.”).
25. See Editorial, $30,000 an Hour, Wall St. J., July 5, 2000, at A22; Symposium, Excessive Legal Fees: Protecting Unsophisticated Consumers, Class Action Members, and Taxpayers, No. 3 Manhattan Inst. Conf. Series 65 (Manhattan Inst. Center for Legal Pol’y), available at http://www.manhattan-institute.org/html/mics3a.htm.
26. See Miriam Rozen & Brenda Jeffers, Why Did Morales Exchange Good Judgment for the Good Life?, Texlaw, Oct. 27, 2003.
27. See And the Winners Are…, N.Y. Law., Dec. 2, 2002, available at http://www.nylawyer.com/news/02/12/120202j.html.
28. Why would the companies agree to settle? For starters, the sheer dollar figures involved—stringing together the smoking-related injuries of millions nationwide—were so large as to make a possible final judgment financially crippling. By settling the cases, the companies were able to smooth damages out into predictable future cost streams, Sarah Frier & Martin Z. Braun, Tobacco Bonds Gain Favor on Potential Steady Income: Muni Credit, Bloomberg, June 23, 2011, http://www.bloomberg.com/news/2011-06-23/tobacco-bonds-gain-favor-on-potential-steady-income-muni-credit.html, as well as to erect what economists call “barriers to entry” to future competitors—i.e., by agreeing to restrict marketing and distribution, the companies made it harder for other player to enter the market and erode their market share, see Ian Ayres, Using Tort Settlements To Cartelize, 34 Val. U. L. Rev. 595, 595-596 (2000), http://scholar.valpo.edu/cgi/viewcontent.cgi?article=1363&context=vulr.
29. See Hans Bader, Competitive Enter. Inst., The Nation’s Top Ten Worst State Attorneys General (2007), available at http://cei.org/pdf/5719.pdf; see also H. 749 (Sorrell’s bill), codified as Vt. Stat. Ann. tit. 33, §§ 1904, 1911 (1998).
30. See Olson, supra note 22, at 40-44.
31. See id. at 30.
32. See Pete Slover, Morales’ Plea May Help Friend’s Fraud Case, Attorney Says, Dallas Morning News, July 19, 2003, available at http://www.dallasnews.com/sharedcontent/dallas/tsw/stories/071903dntexmorales.55d96.html.
33. For a thorough discussion of contingency fees, see generally Lester Brickman, Lawyer Barons: What Their Contingency Fees Really Cost America (2011).
34. See, e.g., John Beisner, et al., Bounty Hunters on The Prowl: The Troubling Alliance of State Attorneys General and Plaintiffs’ Lawyers,Institute for Legal Reform(May 26, 2005), available at www.instituteforlegalreform.com/get_ilr_doc.php?id=939.
35. For an example involving West Virginia’s Darrell McGraw, see John O’Brien, More OxyContin Money Dished Out by AG McGraw, LegalNewsline.com, Aug. 6, 2007, at http://www.legalnewsline.com/news/198887-more-oxycontin-money-dished-out-by-ag-mcgraw. For a broad critique of such so-called cy pres awards more generally in the class action context, see Theodore H. Frank, Cy Pres Settlements, Fed. Soc’y Class Action Watch (Mar. 8, 2008), available at http://www.fed-soc.org/publications/pubid.887/pub_detail.asp.
36. See Beisner, supra note 34.


 

 


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