REGULATION THROUGH LITIGATION
By Walter Olson, 08-30-2005
Since at least the New Deal, it has been taken for granted that it is the elected branches of
government that shoulder the power (and the responsibility) of enacting new schemes to regulate private
and business conduct. When things go wrong, policymakersCongress, or the executive-branch appointees
at the FDA, EPA, SEC, etc.are ultimately answerable to and replaceable by a national electorate.
In recent years, however, a variety of de facto policymakers and regulators have sprung up that don't
seem to fit any of the boxes on conventional civics charts:
- State attorneys general in collaboration with each othersometimes all fifty acting together,
but often only five or ten of the most activistnow pursue lawsuit campaigns intended to force
changes in prevailing business practices or even restructure whole industries. The objectives of these AG
lawsuits are sometimes flatly at odds with the policy preferences of 1) the states whose AGs decline to
join the suits and 2) the federal regulatory agency that ostensibly exercises authority over an area. At
times, the ambitious legal initiatives of a single powerful state AG, such as New York's Eliot Spitzer,
can impose a national (not just statewide) scheme of regulation on a target industry.
- Both AGs and other public officials, such as big-city mayors and county executives, have begun
finding ways to couch policy lawsuitsover, say, the proper regulation of tobacco, guns, lead paint,
or drug pricesin the form of gigantic monetary claims for damages from target businesses.
Increasingly, they team up in partnership with private law firms that (in a practice practically
unheard-of until recent times) assert claims to a contingency share of moneys recovered on behalf
of the public. Indeed, it has become common for the private lawyers to come up with the ideas for
the suits and then persuade the AGs or other officials to sign on. Sometimes the private lawyers are
simultaneously engaged in representing other clients on a contingency basis in suing the same defendants,
multiplying the opportunities for conflicts of interest.
- Laws have proliferated embodying the idea, much admired in the law schools, of the freelance litigant
as "private attorney general". Many such laws allow anyone and everyone (in practice, the suits are
controlled by lawyers or pressure groups) to sue private or public defendants, sometimes with no showing
of injury needed. Such laws typically provide for the award of generously calculated legal fees if
the action enjoys any success in court, usually without exposing the complainant to any prospect of
having to pay a fee to the opponent should the action fail. Sometimes, as with several key statutes in
California, the laws entitle a private complainant who demonstrates a legal violation to collect automatic
damages, again with no need for any showing of injury.
- Finally, and by no means least in significance, plaintiff's law firms have begun banding together
in strike forces to launch litigation campaigns aimed at challenging business behavior heretofore
considered lawful and, if successful, obtaining enormous damages and concomitant fee awards. Prominent
members of the plaintiff's bar have repeatedly described their role as constituting a new "fourth branch
of government", arguing that it is necessary for them to step into such a role because the conventional
branches of government have failed to address policy questions adequately.
In itself, the use of litigation and prosecution to achieve essentially regulatory ends is not
new. Regulators and government lawyers routinely file legal actions aimed at enforcing rules on the
books; more controversially, they may use enforcement actions to push the application of old rules
into new or debatable areas, so that (assuming courts approve) conduct that had not clearly been
unlawful earlier becomes so. There is an obvious tension between this use of litigation against
previously lawful activity and the essential rule-of-law principle that parties should not be penalized
retroactively for stepping over a line that was not made clear in advance.
During the Sixties and Seventies, new conceptions of the function of law rapidly gained ground:
law was seen as a powerful tool to remake society, and antiquated rules that restricted its free
application were seen as an unwelcome legacy of the past. Many influential legal thinkers came
to regard lawsuits as a good thing for society, serving the public interest of deterring unsafe or
unethical behavior and compensating its victims. Earlier worries that litigation was something
highly destructive, that the weaponry it put in people's hands was easily misused, that it was not a
very desirable way to address broadly controversial policy matters of the sort traditionally handled by
elected branches of governmentall these reservations tended to fade as the new mood took hold.
One early result was a great blossoming of institutional-reform litigation identifying inequalities,
unfairnesses or harsh outcomes in the operation of public (and some private) institutions and demanding
such remedies as cross-district racial busing in school systems, court takeovers of prison and mental
health systems for the sake of protecting inmates' rights, expanded due process rights for welfare
recipients, and much more. Hundreds of ambitious suits met with success, frequently resulting in
the negotiation of consent decrees in which the government or other parties being sued agreed to
revamp old policies and sometimes seek permission from the plaintiff's groups before adopting new
ones. As Ross Sandler and David Schoenbrod have
pointed out, one of the practical effects of such
litigation is to put enormous and largely unaccountable policy-shaping power in the hands of the private
groups that file the lawsuits. Although the romance of grand-scale institutional reform litigation has
to some extent cooled over the past quarter century, the movement continues to rack up many successes,
notably with the campaign to persuade courts to order "Robin Hood" school finance reform, which
has persuaded the judiciary in a majority of states to assert new control of school funding and,
frequently, to order the allocation of higher sums to underperforming schools or districts.
Meanwhile, the world of AG litigation (and mass tort litigation) has been revolutionized by the
stunning success of state-Medicaid tobacco litigation. By combining their efforts and running a shrewd
media and political campaign, an alliance of state AGs and influential private lawyers was able
successfully to promote the long-shot theory that the health care costs of tending to smokers'
illnesses could properly be charged back through litigation to cigarette manufacturers. The result
was a $246 billion settlement which ensured a steady flow of money for years to come for both
the states and, not incidentally, the lawyers. The tobacco model was soon being tried in a
dozen or more other areas: gun control, the regulation of HMOs and nonprofit hospitals, campaigns on
lead paint, alcohol marketing, "greenhouse gases" and pharmaceutical pricing, and, perhaps most
strikingly, suits seeking to blame food providers for obesity. In most of these areas the lawsuit
campaigns pursued policy goals that Congress had considered but had pointedly failed to act on.
In the eyes of some of its enthusiasts, at least, litigation was emerging as a kind of substitute
or surrogate national legislature.
Belatedly, the new wave of regulation-through-litigation has begun to attract criticism. Political
thinkers criticized its tendency to seize the reins of governance away from the popular branches of
government and into an elite legal community; businesspersons began to grasp that tobacco was not going
to be an isolated case of expropriation; a strong whiff of pay-for-play abuses and cronyism drew
muckraking attention to the coziness between public and private lawyers in the tobacco affair. It remains
to be seen whether this new scrutiny will come in time to check the ambitions of the emerging "fourth
branch of government".