The Federalist Society

Novel Government Lawsuits Against Industries: An Assault on the Rule of Law

Federalism & Separation of Powers Practice Group Newsletter - Volume 3, Issue 1, Spring 1999

July 1, 1999

William H. Pryor Jr.

Presentation by Bill Pryor, Attorney General of Alabama

Tuesday, June 22, 1999, U.S. Chamber of Commerce, Washington, D.C.

The Federalist Society, The Manhattan Institute, and The U.S. Chamber Institute for Legal Reform Conference on The New Business of Government-Sponsored Litigation: State Attorneys General & Big City Lawsuits

Two years ago, I warned, in editorials published in The Wall Street Journal and The New York Times, that the lawsuits filed by my fellow state attorneys general against the tobacco industry threatened the entire business community. Since then, the legal landscape has deteriorated to the point that we are here today to discuss generally the "new business of government-sponsored litigation" and, on this panel, specifically, "state attorneys general and the power to change law." I am still a dissenter. My objection to this new wave of lawsuit abuse is that it violates the key principle that underlies the American notion of the rule of law. In my remarks, I will explain this objection and outline four abusive features of this litigation. I also will offer four ideas for curtailing this problem.

Eleven years ago, Justice Antonia Scalia was the lone member of the Supreme Court to vote to declare the independent counsel law unconstitutional. The beginning of his dissenting opinion, which is today more popular than it was in 1988, is worthwhile reading. Justice Scalia 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 it may be a government of laws and not of men.

The Framers of the Federal Constitution similarly viewed the principle of separation of powers as the absolutely central guarantee of a just Government." Morrison v. Olson, 487 U.S. 654, 697 (1988) (Scalia, J., dissenting).

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—commercial regulation, taxation, appropriation, and the power to change law—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 both legally and politically. 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 marketing, the sale of clothes with brand-name logos, sponsorships of most forms of commercial entertainment, and even some forms of lobbying. Politically, antitobacco activists could not have enacted legislation on this scale in either Congress or a substantial number of state legislatures. Indeed, they tried and failed. Legally, these restrictions could not have been achieved through legislation without violating the free speech guarantee of the first amendment.

By utilizing litigation to achieve new regulation, the proponents of government expansion have a powerful new tool. If the new regulations are "voluntarily" accepted by the industry through a settlement agreement, then the constitutional and other legal objections become moot. What has been impossible legally and politically suddenly becomes possible, even attractive or worse, inevitable. The historic respect of the common law for freedom of contract and private property is also undermined when the manufacturer of legal but dangerous products can be haled into court to pay huge sums that were unforeseeable when the manufacturer first calculated the risks of investing in that market.

The main objective of the tobacco lawsuits, despite the rhetoric of the proponents, was to raise revenue. Indeed, the tobacco settlement represents the largest government-imposed 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 old-fashioned way. This method bypasses the need for representatives or the voters to approve the tax. Those "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 the lawsuits is that the new revenue involves the payment of damages. From a legal perspective, compensatory damages would involve primarily retroactive relief (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 Harvard Law School has proved that cigarette tax collections more than offset the cost to government for treating tobacco-related illnesses. The tobacco deal instead requires the industry to pay a new revenue stream based on current government costs, with no credit for existing tax collections, and that revenue stream continues forever without regard to the good or bad conduct of the industry.

The third legislative power invaded by these lawsuits is appropriation. This intrusion has sparked some battles in states where governors and legislators want to control the spending of the new tobacco revenue. The most egregious example, of course, involves the billions of dollars to be paid to attorneys without a legislative appropriation. The payoff for the attorneys makes these lawsuits a remarkably inefficient way to raise revenue. In addition, the tobacco settlement creates a multibillion dollars 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 here in the District of Columbia 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: namely, the end justifies 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 industries should be able to assert well-established defenses of assumption of risk, contributory negligence, and statutes of limitation. Governments should not have rights to sue that are superior to the rights of the citizens on whose behalf the lawsuits are filed.

Second, there needs to be either a ban of contingent fee contracts for government attorneys or tight regulation in this area. For a long time, contingent fee contracts were considered unethical, but that view gave way to 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 also control access to the legal system. The use of contingent fee contracts allows governments to avoid the appropriation process and create 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 industries 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 gun suits. The usual presumption in favor of the plaintiff's choice is unfair to an out-of-state corporation, especially when the government plaintiff actually controls the entire court system.

Fourth, these suits require special rules for appeals. In a bet your industry lawsuit, it could be impossible for the defendants to post an appeal bond. When governments pursue 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. The profound debate that produced our Constitution and Bill of Rights revolved around this problem. The Federalists believed a federal government of enumerated powers with three distinct and competing branches would best preserve our liberty while Thomas Jefferson and his fellow Antifederalists insisted that a Bill of Rights was needed to restrain a powerful central government. Fortunately, we inherited gifts from both groups.

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 governments 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.


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