The Avengers General
State AGs have accumulated an enormous amount of power. Too much, some people think.
Tom Miller, the attorney general of Iowa, is a genial sort of fellow, with sandy hair, a guileless face and a soft-spoken manner. But when he talks about suing corporations, he can sound a little menacing. Miller is convinced that, on many issues, attorneys general have become an almost unstoppable force. If the AGs get wind of a company engaging in illegal activities and join together against it, he boasts, there is nothing that company can do to head them off before justice has been meted out. "There's no political fix," he says. "They can't hire the right lawyers, they can't hire the right lobbyists. They can't go to the governors."
Few would dispute that, in the past five years, state attorneys general have altered the dynamics of corporate regulation in this country. They have taken on Microsoft and Merrill Lynch, Philip Morris and Household Finance. They have sued the manufacturers of compact discs and lead paint, footwear and George Foreman grills. And most of the time, they have won.
"In some ways, they're more powerful than governors," says Bob Sommer of MWW Group, a lobbyist for major corporate clients. "They don't need a legislature to approve what they do. Their legislature is a jury. That's what makes them frightening to corporate interests."
And most attorneys general have not been shy about acknowledging their influence. Last fall, when a coalition of AGs reached a $484 million settlement with the parent company of Household Finance, Miller called it a "basis for reforming the [lending] industry." New York Attorney General Eliot Spitzer made similar claims about changing the behavior of Wall Street financial firms when he announced settlement deals with them last year in a conflict-of-interest dispute.
That a backlash against this power would ultimately emerge is no surprise. What is interesting is where the backlash is coming from--a dissident bloc of the attorneys general themselves. Four years ago, a group of Republican AGs created RAGA, the Republican Attorneys General Association, to stop what they called "government lawsuit abuse" and redirect state legal efforts away from national tort cases and back to traditional crime fighting. RAGA may not have slowed down the litigation process very much, but it has brought the office of state attorney general back into political play around the country. There were only 12 Republican attorneys general in 1999, when RAGA was founded; today, there are 20.
One of the RAGA recruits is Phill Kline, who was elected attorney general of Kansas last November on a platform that accused his predecessor of presuming corporations to be guilty and treating justice as a revenue source. Kline says today's activist AGs have gotten "dangerously close" to an "addicting" cash-prize legal system reminiscent of the old territorial practice of paying judges for convicting defendants.
Like several of the other RAGA rookies, including Mike Cox of Michigan and Brian Sandoval of Nevada, Kline feels it is a mistake to spend too much time and energy pursuing consumer cases at the expense of criminal prosecutions. He says he will pursue any case where there is clear wrongdoing and will join with other states when a case warrants it. But, in general, he favors a less confrontational approach, hoping that his fellow AGs will be more willing to talk things through with a company before filing a suit. "There's a different threshold that has to be met," Kline says. "You have to prove legal violations, not just an unfortunate policy result."
RAGA has received generous help in its bid to rein in the activists. Last fall, the U.S. Chamber of Commerce ran its own television campaigns against aggressive Democratic candidates for attorney general. So did the Law Enforcement Alliance of America, an arm of the gun lobby. In some states, these efforts generated million-dollar ad campaigns. In Texas, the Alliance's estimated $1.5 million late-season ad campaign helped keep the attorney general's office in Republican hands. This was an expanded version of the Chamber's effort in Indiana in 2000, when a $200,000 ad campaign was widely viewed as a leading factor in driving an incumbent Democrat out of office.
To some of the conservative AGs who are active in RAGA, winning elections is the one sure way to change the culture of the office. "Any time you've got more Republicans in any organization, it tends to be more conservative, more business-friendly and more anti- regulatory," says Virginia's Jerry Kilgore, the current RAGA chairman. Kilgore cites the issue of pharmaceutical pricing as one that would likely have been pursued by state AGs through the courts just a few years ago but is being addressed in much more quiet negotiations today. "Everything will be looked at more closely," Kilgore says, "to keep the balance between protecting consumers and allowing business to grow."
Despite RAGA's successes, however, it is not at all clear that the activism of recent years is about to crumble away. Even the Republican attorneys general who have been most critical of the multistate cases have been happy to share in the wealth once a nationwide settlement agreement has been reached. True, they are less likely to generate such cases themselves. But there remain more than enough activist Democrats in office to keep the litigation going. "Even five to 10 AGs, if they have the resources and drive, can go ahead if they have a good case," says Tom Miller. "It was always a failed mission to get rid of the multistate cases by electing more Republican AGs, even a majority of Republican AGs."
The 58-year-old Miller, now serving his sixth term, is the dean of state attorneys general. He is happy to recite the history of the group, recalling the easy collegiality of the earlier years when few of the AGs even knew the party affiliation of their peers. The multistate approach, according to Miller, was born during the late 1970s, when several AGs wanted to pursue a case against General Motors Corp. They were afraid the carmaker would "out-resource us," and banded together to share their strength. "We started defensively," he says, "but then we understood there were some tactical advantages to joining together as well."
During the Reagan years, many of the state attorneys general felt that the Federal Trade Commission and the U.S. Justice Department's antitrust division were too wedded to laissez-faire regulatory dogma. (Connecticut Attorney General Richard Blumenthal has called the feds of that era "toothless and clueless... as a matter of ideology.") The AGs also noticed that many of the types of businesses they had sued in the past in their home states, such as pharmacists and funeral home operators, had become part of national chains. So they initiated a number of successful multistate consumer protection cases.
The combined weight of the AG offices, which range in staff size from about two dozen lawyers in South Dakota to more than 1,000 in California, was enough to take on even the most sophisticated corporations. Advances in technology--notably e-mail and conference calling--made it easier for state lawyers in disparate capitals to spread and coordinate their efforts.
By the end of 2000, various groups of AGs could boast of a long list of multimillion-dollar settlements. They had won $56 million in antitrust money from toy makers and retailer Toys "R" Us, and $16 million worth of settlements with Reebok and Keds to answer price- fixing complaints. They had forced Publishers Clearing House to pay $18 million to 24 states. They settled on favorable terms with retailers and consumer credit firms that had collected on debts discharged in bankruptcy and with pharmaceutical firms over complaints about the effectiveness of medicines and improper payments to pharmacists.
The pace has not slowed down since then. In the past few months alone, the AGs have claimed victory and $51 million in a case against Ford Motor Co. over SUV safety. They have settled two cases against Bristol-Myers Squibb, collecting a $155 million payoff, after claiming the company had blocked the introduction of generic alternatives to its drugs. Last year's litigation season brought the huge Household Finance settlement and Spitzer's series of agreements with Merrill Lynch and other Wall Street securities firms. Household will refund money to mortgage borrowers who were misled into paying extra charges, buying extra insurance or accepting unfair interest rates. The Wall Street cases turned on brokers recommending the stocks of companies their firms were doing business with (and issuing misleadingly cheery research about).
The granddaddy of all the AG successes, of course, is the crusade against the tobacco companies. When this case got underway in 1994, says Mississippi Attorney General Mike Moore, "I was alone. No one had a clue it was going on." But within four years, 19 other states had filed their own lawsuits. This led, after a period of delay in which Congress wrestled unsuccessfully with the issue, to the series of settlements with states initially estimated to be worth $246 billion over 25 years.
A few weeks ago, after Moore had announced he would not be seeking reelection this year, a group of contributors at a RAGA fundraiser in Washington lustily cheered. Moore calls that reaction "unseemly," but the more appropriate word might be "naïve." Moore may have started the ball rolling, but there are now at least a dozen attorneys general equally enthusiastic about launching anti-corporate lawsuits. And as critics continually point out, the attorneys general aren't a legislative body. They don't need a majority vote to proceed.
"If you assume over the next couple of cycles that this becomes a mature political office, meaning national interests are participating on both sides," says Sommer of the MWW Group, "you're never going to have more than 30 of one party and less than 20 of the other. You're always going to have plenty of AGs who are going to sign on to litigation."
Until recently, there has been no political cost imposed on an attorney general joining a multistate settlement--even if he didn't approve of bringing the case initially. The money is there on the table. Most AGs feel they wouldn't be doing their jobs if they didn't take it. Virginia's Kilgore, now the point man in the Republican drive to restrain AG activism, says that his decision to sign on to the Household settlement was easy: It represented $16 million for Virginia consumers.
The reality is that where there is money to be had from the work of others, virtually every state AG will come on board, regardless of ideology. "While they're getting a lot of funding from corporations to elect Republicans," says Lisa Madigan, the newly elected Democratic attorney general of Illinois, "the fact is that Republicans are participating in settlements. Essentially, you've got Republicans working both sides of the streets."
Democrats delight in pointing out such apparent contradictions. At an AGs meeting in Washington in March, Alabama Republican Bill Pryor introduced a constituent who runs a program designed to curb violence against women. Pryor is one of the leading conservative voices against AG excesses, but the Alabama program is funded by money from a multistate case against the women's footwear company Nine West--money that Pryor didn't mind accepting. California Democrat Bill Lockyer sarcastically commended Pryor "for his enthusiastic participation in the Nine West case. It made your outstanding initiative possible." Amidst the laughter of his colleagues, Pryor could say nothing but "thank you."
Free money aside, there is additional pressure on even reluctant attorneys general to join a multistate settlement. In many instances, the company involved in a case wants them to: The more AGs sign on to a settlement, the more protection the company has from future liability. Sometimes, a firm will demand as part of the settlement that states representing 80 percent of its customer base sign on before the agreement takes effect. Or that California and New York come on board, so it doesn't have to worry about suits from the big states down the road.
Pryor sees the wave of anti-corporate activism receding a bit now because Democratic AGs are fighting the Bush administration on issues such as environmental policy, leaving less time for private litigation than they had in the Clinton years. And he sees RAGA and its campaign assistance to be a further force that will restrain AG activism in the future.
But whatever the partisan or ideological makeup of the 50 AG offices around the country might be, it seems unlikely that a majority of them will want to renounce their influence now that they have attained it. Around the same time that RAGA was being formed, Spitzer, whose Wall Street investigations have largely been a one-man show, declared to a conservative audience that "there has been this tremendous redistribution of legal power away from Washington, and who better than state attorneys general to step into the void to ensure that the rule of law is enforced?"
In the long run, that is a proposition that attorneys general of all stripes are likely to find attractive, regardless of where their campaign money came from. "Like every officeholder, they want to enhance the importance of their office," concedes James Wootten, former president of the U.S. Chamber Institute for Legal Reform and a critic of the activists. "The trend will probably continue."
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