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Michael DeBow Archives

Hail! Hail! to Michigan

Don't miss the well-earned tribute to the Michigan Supreme Court on Opinion Journal today, written by the Mackinac Institute's Patrick Wright.

More on Katrina and the legal system

The September 23 issue of "After Katrina Legal News," a newsletter published by the New Orleans-based firm Phelps Dunbar, is online here. Included is this rundown of Katrina Lawsuits:

The first of what is expected to be a multitude of lawsuits relating to Hurricane Katrina have been filed. The Attorney General of Mississippi has sued numerous insurance companies in state court seeking to void exclusions in property casualty insurance policies. Private class action law suits have been filed in Louisiana seeking declaratory judgment that damages caused by waters entering New Orleans because of breaches in the levee system are covered by homeowner insurance policies. A federal class action suit has been filed against oil and gas pipeline companies and oil and gas exploration companies for damages caused to Louisiana's wetlands by the creation of pipeline and access canals, which allegedly contributed to destruction caused by Hurricane Katrina. Class action suits have been filed against oil companies and oil well operators relating to some of the 44 reported oil spills caused by the storm, including five spills classified by the Coast Guard as "major" (over 100,000 gallons), and four spills classified as "medium" (10,000 to 100,000 gallons).

Martin Grace has some thoughts on the suit brought by the Mississippi AG, here and here. The Wall Street Journal editorial page calls it a "Category 5 Lawsuit." The website of the Mississippi AG's Office includes a Katrina-related links page that covers the suit.

Today in the Western District of Louisiana, the Competitive Enterprise Institute filed a lawsuit "on behalf of a distributor; two small tobacco manufacturers; a tobacco store; and an individual smoker" against Louisiana's attorney general, challenging the settlement as a violation of the "compact clause" of the U.S. Constitution, article I, section 10. The CEI press release explains:

The Compact Clause was meant to prevent states from collectively encroaching on federal power or ganging up on other states. The tobacco settlement set up a national government/tobacco cartel that harmed consumers and small businesses by increasing cigarette prices and restricting competition.

You can read the complaint here (PDF). More on CEI's views on the "Abuses of the Government-Tobacco Cartel" is available on its "Control Abuse of Power" website.

According to a spokesman for Ford Motor Co., something like 120 Illinois police agencies have already dropped out of a class action suit alleging the Crown Victoria police cruiser is unsafe, and more police officials are likely to follow. The most likely explanation is Ford's refusal to sell new Crown Vics to police departments that join a class action. Explains the Ford attorney, "If you think the vehicle is unsafe � we don't � but if you do, don't expect us to supply you vehicles."

The Rolling Meadows Police Department is one of the departments that has dropped out of the lawsuit.

Deputy Police Chief Dave Scanlan said he did not even know his department was part of the lawsuit because he never saw a letter informing the city it would be included unless it expressly declined. The department found out about it when it was time to buy more squad cars.

"We woke up and Ford wouldn't sell us any Crown Vics," he said.

Don Babwin, "Many police depts. drop Crown Vic suit," AP, March 22.

Robert Hahn's new book by this title was published recently by the AEI Press. For a description and ordering info, click here. To download the book as a PDF file, click here. Hahn explains his four "key points" as follows:

Summary measures of the impact of regulations have made important contributions to our understanding of the regulatory process�a point often overlooked by critics who call for abandoning scorecards measuring costs, benefits, cost savings, lives or life-years saved, cost-effectiveness, and net benefits.

Making refinements to scorecards rather than wholly rejecting them as an analytical tool could address many of the critics� concerns that the techniques and applications of economic analysis are fundamentally flawed.

Some of the suggestions made by the critics are legitimate, but many are not. Supporters of economic analysis of regulation agree that placing monetary values on the costs and benefits of regulation is difficult. But that does not mean we should abandon the tool.

The solution to legitimate concerns raised by the critics is not to eliminate quantitative economic analysis but to gain a deeper understanding of its strengths and weaknesses and to use it wisely.

States' tobacco settlement update

The Feb. 28 issue of Forbes magazine includes an interesting piece (registration required) by Scott Woolley that describes the antitrust challenge brought by International Tobacco Partners against the 1998 "Master Settlement Agreement" between 46 states and the four largest cigarette makers. The case was argued to a Second Circuit panel earlier this month. Woolley describes the scene: An attorney from the New York Attorney General's office

declared that to believe the states had sold out to Big Tobacco, you would have to assume that 46 attorneys general are liars.

"That's tempting," Judge Guido Calabresi shot back. "It may be that when the states were offered a stake in a monopoly, they took it."

In getting the four cigarette titans to agree to pay the states princely sums, which would require price increases, the states agreed to help the big brands avoid getting undersold by discounters. They did so by requiring even new off-price brands to pay roughly the same level of fees (now about 40 cents a pack). The states were disarmingly transparent about their intent: to "fully neutralize" the competitive advantage of the discounters, the settlement says.

The article refers to a recent study by Duke Univesity health economist Frank Sloan and others, that shows that the settlement "raised both profits and stock prices of the big [tobacco] companies." Click here to read the abstract of the article, "Impact of the Master Settlement Agreement on the tobacco industry," which appeared this year in the journal Tobacco Control. Its conclusion: "The experience during the post-MSA period demonstrates that the MSA did no major harm to the companies. Some features of the MSA appear to have increased company value and profitability."

Senate passes class action reform

S. 5 adopted by a 72-26 vote. According to AP,

The House is expected to take it up next week and send it to President Bush for his signature.

School finance litigation update

In a recent column, Phyllis Schlafly surveyed the current landscape of constitutional challenges to the funding of public schools:

Without national media coverage, litigating lawyers and supremacist judges have been using the judiciary to take control of public schools. In the last 18 months, more spending has been ordered by state supreme courts in Kansas, New York, North Carolina and Montana, and by trial judges in Massachusetts and Texas.

Public schools in 24 states are facing lawsuits from special-interest groups trying to get activist judges to order taxpayers to spend more on schools, money that can come only from higher taxes. Courts are micromanaging schools, telling them how much money to spend and on what, right down to making decisions about computers and textbooks.

Among the most recent developments, the Kansas Supreme Court last month held that state's funding of K-12 to be unconstitutionally inadequate. Schlafly says that the opinion "implied that the state must spend an additional $850 million or more annually on public schools."

DOJ dealt a big loss in tobacco case

Yesterday a divided panel of the U.S. Court of Appeals for the District of Columbia Circuit rejected the U.S. Government's RICO-based theory of recovery in its lawsuit against cigarette manufacturers. The majority opinion (PDF file here), written by Judge David Sentelle, explains that

The relevant section of RICO, 18 U.S.C. 1964(a), provides the Disctrict Courts jurisdiction only for forward-looking remedies that prevent and restrain violations of the Act. Because disgorgement, a remedy aimed at past violations, does not so prevent or restrain, we reverse the decision below and grant partial summary judgment for the Appellants.

Judge Stephen Williams wrote a separate concurrence; Judge David Tatel dissented.

Assuming it survives en banc review, of course, the ruling will, as pointed out by the New York Times, eliminate

the government's biggest potential financial threat to the tobacco industry from the case. That is the government's calculation of $280 billion in profits it estimates that the industry garnered from cigarettes smoked from 1971 to 2000. Lawyers for the tobacco companies had contended that being forced to disgorge so great a sum could have driven some companies into bankruptcy.

Drug price controls and new drug R&D

In a short article in the fall 2004 issue of Regulation (scroll down to p. 4), John Vernon, of the U. of Connecticut, issues a sober warning about proposals to regulate pharmaceutical prices. Vernon and his colleagues have determined that for every 10% reduction in pharmaceutical prices, the industry spends 5.83% less on new drug research. It follows that if additional government regulation in this area actually reduced drug prices, this would necessarily involve a reduction in the number of new drugs developed and brought to market. Vernon estimates the number of "life-years" lost as a result of a range of price reductions via regulation -- for example: a 10% reduction in prices leads to the loss of 40.1 million life-years. A more aggressive policy that results in a 50% reduction in prices would cost 178.8 million life-years.

His bottom line: "any benefits associated with improved access to today's medicines through price controls must be weighed carefully against the potential long-run costs."

Well worth reading.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.