High-Growth Product: Regulated Industries
REGULATION THROUGH LITIGATION
Trial Lawyers, Inc. supplants elected officials and regulators as a fourth branch of government.
Once upon a time, law school graduates could look forward to one of two career paths. Those who hoped to make it rich—or pay down their law school loans—headed off to big law firms, representing deep-pocket clients in typically mundane if complex business cases. Those who retained a sense of idealism and wanted to “help people” or “better the world” left for low-paying but personally fulfilling “public interest” jobs, on behalf of indigent defendants, civil rights causes, and the like.
As Manhattan Institute senior fellow Walter Olson chronicles in The Rule of Lawyers, however, the deep pockets of Trial Lawyers, Inc.—especially since the tobacco settlements—have completely changed this equation. Today, the fastest way to riches in the legal profes-sion is undoubtedly to become a plaintiffs’ attorney for Trial Lawyers, Inc. And those members of Trial Lawyers, Inc. who want to “change the world” can do just that, as well, since they have amassed so much power that they can drive major policy changes on their own.
As Olson notes, the litigators of Trial Lawyers, Inc. have emerged as a “fourth branch” of government; and the grave danger of this branch is that, unlike the three carefully designed by our constitutional framers, there are essentially no checks and balances on its power. Whether or not one agrees with the political objectives pursued by Trial Lawyers, Inc., one has to be fearful of the democratic implications of ceding national decision making to an unelected, unaccountable, self-interested industry. As former secretary of labor Robert Reich has noted, “The era of big government may be over, but the era of regulation through litigation has just begun.”
Justice for Hire: The Co-option of Attorneys General
A key to Trial Lawyers, Inc.’s ability to regulate has been its ability to cooperate with, and receive the blessings of, state attorneys gen-eral. State attorneys general typically have broad power to sue on behalf of the state for alleged wrongdoings. The breakthrough in Trial Lawyers, Inc.’s relentless pursuit of Big Tobacco’s deep pockets came when Dickie Scruggs got the cooperation of Mississippi’s attorney general Mike Moore to go after the tobacco companies in suits to “recoup” state medical expenses due to smoking-related ill-nesses. Scruggs had given substantial sums to Moore’s campaign as well as flying him around the state to campaign stops.
When the case went national, more states came after tobacco dollars, and Moore and Scruggs conceived the almost unprecedented step of having state attorneys general contract out the cases to Trial Lawyers, Inc. on a contingency-fee basis. It mattered little that the theory underlying the states’ cases was rather shaky (both the RAND Corporation and the Congressional Research Service estimated that the external costs of smoking were exceeded by excise taxes on cigarettes). Typically, each state’s case went both to “national” counsel—the originators of the tobacco gambit, such as Scruggs, Motley, and their friends—as well as to “local counsel” from the state in question.
As former secretary of labor Robert Reich has noted, “The era of big government may be over, but the era of regulation through litigation has just begun.”
The potential for corruption in such a scenario is vast. For example, Kansas attorney general Carla Stovall hired her former firm, Entz & Chanay, to be the state’s local counsel; not surprisingly, the firm offered her an office and generous contributions for her reelection campaign. Though there has been no evidence of any quid pro quo in this or most other cases, the indictment and guilty plea of former Texas attorney general Dan Morales (see box on page 7) shows just how dangerous these arrangements can be.
Emboldened by its success against the tobacco companies, Trial Lawyers, Inc. predict-ably branched out to tackle new industries it wished to regulate. And, again predictably, attorneys general continued to help them in their cause. When questioned during the tobacco negotiations “whether she intended to go after other industries, such as firearms, high-fat food, and alcohol,” Janet Reno replied that she was “not aware of any other industry” that might present a similar case. Six months later, the Justice Department decided to assist Trial Lawyers, Inc. in suing gun manufacturers.
Sorry, Wrong Number: Trial Lawyers, Inc. Takes on Regulated Industries
In cases like tobacco and guns, Trial Lawyers, Inc. has supplanted the legislatures in regulating industries that our demo-cratically elected officials had left alone. Even more dangerous, perhaps, is the increasing tendency of Trial Lawyers, Inc. to regulate through litigation industries that are already heavily regulated by statutorily created administrative agencies. Industries like pharmaceuticals (see box, below) and telecommunications are closely regulated by the Food and Drug Administration and Federal Communications Commission, respectively, but have nevertheless been on the receiving end of a litigious regulatory assault by Trial Lawyers, Inc.
Indicative of the assault on regulated industries is the antitrust suit against Verizon launched by Curtis V. Trinko, LLP, a securities class action firm, on behalf of East Coast customers. Under an FCC consent decree, Verizon paid competitive local exchange carriers $10 million over a billing glitch. Trinko’s lawsuit alleges that all Verizon customers are also entitled to compensation under the antitrust laws, under a novel interpretation of what is known as the “essential facilities” doctrine.
The key point here is that such a lawsuit runs squarely against the regulatory authorities vested in the FCC. By forcing Verizon and other local carriers to subsidize their competition, the lawsuits threaten to undermine the balance struck by Congress in the Federal Communications Act of 1996. And as noted by John Rogovin, the FCC’s acting general counsel, “It’s difficult to imagine how a private case getting into this ‘essen-tial facilities’ issue . . . is not going to bump up quite seriously into what the commission is doing.” Trinko is now pending before the U.S. Supreme Court; only time will tell how far Trial Lawyers, Inc.’s power to regulate by litigation will extend.
A DANGEROUS PRESCRIPTION
Pharmaceuticals are heavily regulated by the Food and Drug Administration under Congress’s grant of authority. For better or worse, all drugs must go through lengthy and onerous approval processes before being introduced into the market. Yet such strict regulatory oversight has not stopped Trial Lawyers, Inc. from suing drug manufacturers over alleged side effects and “defects.” From Bendectin to Fen-Phen, from Norplant to IUDs, Trial Lawyers, Inc.’s pursuit of deep-pocket pharmaceutical manufacturers has been relentless; and often the “science” underlying such claims has been junk.
Some of the costs of such litigation are obvious: raising consumer prices, reducing research into new drugs, and forcing manufacturers to withdraw existing effective drugs from the market. The onslaught of cases against birth control devices such as Norplant and IUDs has led to a virtual cessation of research into new contraceptives and drugs or devices to facilitate women’s reproductive health.
But particularly insidious is the pharmaceutical suits’ usurping of FDA authority. Every jury award that a drug was too “unsafe” to be introduced into the market directly undermines the FDA’s congressional mandate to approve which drugs are safe and effective enough to be sold. The FDA has intervened in recent court actions to explain how judicial review of FDA-approved labeling undermines FDA oversight of drugs and patient health.
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133. See generally Olson, supra note 44.
134. See id. at 23.
135. See id. at 311-12.
136. Reich, Robert B., Regulation Is Out, Litigation Is In, THE AMERICAN PROSPECT ONLINE (Feb. 11, 1999), http://www.prospect.org/webfeatures/1999/02/reich-r-02-11.html.
137. See Olson, supra note 44, at 25-47.
138. See id. at 25-26.
139. See id. at 33-39.
140. See id. at 30.
141. See id. at 35.
142. See id. at 33-39.
143. See id. at 40.
144. See id. at 40-44.
145. See id. at 42.
146. Victor E. Schwartz & Leah Lorber, Regulation through Litigation Has Just Begun: What You Can Do to Stop It, NATIONAL LEGAL CTR. FOR THE PUBLIC INTER-EST 15 (Nov. 1999).
147. See id.
148. See Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atlantic Corp., 305 F.3d 89 (2d Cir. 2002), cert. granted 123 S.Ct. 1480 (Mar. 10, 2003).
149. See Comments of William P. Barr, The New Class Action Targets: Are Class Actions Undermining Regulation in the Fields of Financial Services, High Tech-nology, and Telecommunications? (Oct. 30, 2002) (“[Verizon] agreed with the FCC [to] pay [competitive local exchange carriers] $10 million [for] failure to notify them in a certain group of orders over a relatively brief pe-riod of time.”) [hereinafter, “New Class Action Targets”], available at http://www.manhattan-institute.org/html/clp_10-30-02.htm#p1.
151. See id.
152. Comments of John A. Rogovin, New Class Action Targets, supra note 149, available at http://www.manhattan-institute.org/html/clp_10-30-02_contd.htm#p2.
153. See generally Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 31 et seq.
154. See generally id.
155. See, e.g., MICHAEL D. GREEN, BENDECTIN AND BIRTH DEFECTS: THE CHALLENGES OF MASS TOXIC SUBSTANCES LITIGATION 328 (1996); see also Louis Lasagna & Sheila R. Shulman, Bendectin and the Language of Causation, in PHANTOM RISK: SCIENTIFIC INFERENCE AND THE LAW 101-22 (Kenneth R. Foster, David E. Bernstein & Peter W. Huber, eds., 1993).
156. See Brown, supra note 56, at 30-32; Arkin, supra note 56.
157. See Amicus Brief, Motus v. Pfizer, Inc., Nos. 2-55372, 02-55498 (9th Cir. Sept. 3, 2002).