Regulation by Litigation
Posted by Jonathan H. Adler · 12 November 2004 ·
State attorneys general and private plaintiffs lawyers are increasingly turning to the nation’s courts to adopt regulatory measures that legislatures reject. Such “regulation by litigation” has been used against numerous unpopular industries in suits by government and private attorneys. The first set of cases sought to regulate and extract rents from the tobacco companies, but subsequent cases have been brought by both private lawyers and government agencies against gun makers, lead-paint producers, coal-burning utilities, diesel engine manufacturers, and many other industries. In each case, the aim is to extract rents and impose regulatory controls that could not be adopted through the legislative or administrative process. The Federalist Society’s Litigation Practice Group took up these questions in a panel Friday at the Society’s National Lawyers Convention in Washington, D.C. Notes and commentary on the panel follow.
Professor Richard Daynard of the Northeastern University School of Law suggested that the common law has always involved the development of legal principles and the setting of new precedents. Litigation certainly has a regulatory impact, and it always has. Much of what is challenged today as regulation by litigation, such as the state attorneys general anti-tobacco litigation, involves little more than the application of settled principles of law to new sets of facts. Most of the radical innovations in these cases are not in the plaintiffs’ claims, Professor Daynard suggested, but in the defenses accepted by courts, such as preemption. Constitutional limitations on arguably innovative use of tort litigation should be of particular concern, Professor Daynard suggested, because such holdings (unlike common law innovations in tort law) cannot be overturned by the legislature.
Responding to concerns that regulation by litigation is undemocratic, and therefore a potentially illegitimate use of judicial power, Professor Daynard argued that he legislative process is corrupted by campaign contributions and “political muscle” and therefore should not be held up as a democratic ideal. Insofar as the legislature cannot be relied upon to adopt needed public protections – or at least those protections that Professor Daynard believes are necessary, such as more stringent tobacco regulations – he suggested there is nothing wrong with turning to the courts for the desired policy outcomes.
The Cato Institute’s Robert Levy responded to challenge regulation by litigation in all its forms. As currently practiced, Levy noted, government entities band together to sue private companies and effectively shake them down for high-dollar settlements. This problem is made worse by the use of contingency fee arrangements between government agencies and private attorneys. In the tobacco litigation, Levy noted, these factors were compounded by state legislative actions to remove traditional legal defenses that might have protected tobacco companies from Medicare recovery suits brought by state attorneys general. The resulting master settlement agreement (MSA) turns what had been a competitive cigarette industry into a government-monitored cartel that preserves the dominant market share of the largest cigarette companies – and at the same time jacks up cigarette prices and sends millions to state coffers. As comedian Dave Barry characterized the deal (and I paraphrase from Levy’s remarks): “The tobacco companies admitted that they were responsible for killing 400,000 people a year, and then pledged to keep on doing so under careful state supervision.”
Under the MSA, big tobacco, state governments, and plaintiffs attorneys (who get $0.5 billion per year in fees) are all big winners. The only losers are smokers – the very people the anti-tobacco suits were supposed to “protect.” Alas, Levy noted, the current Justice Department is compounding this problem by bringing an anti-tobacco lawsuit of its own. Professor Maynard acknowledged many of these critiques of the MSA, but nonetheless contested that the MSA has done more than anything Congress has enacted to combat the “public health menace” of tobacco. In effect, he argued that regulation by litigation was justified in the case of tobacco because it produced a desired outcome. Professor Maynard further suggested the courts were unprincipled insofar as they allowed states to sue as third-party plaintiffs but barred health insurers or other private parties from bringing similar claims.
The Manhattan Institute’s Walter Olson began wondering why Congress is not more jealous of regulation by litigation. As Olson notes, regulation by litigation is often defended as a de facto replacement for legislation. Insofar as legislatures and executives are unable or unwilling to adopt particular policies, they argue, there is nothing wrong with a handful of lawyers and a handful of judges imposing such rules in the courts. Congress, one would think, would defend its prerogative as the nation’s lawmaker to prevent this usurpation of legislative function. Instead, Olson noted, the U.S. Congress has largely abdicated this responsibility. With the exception of an almost-successful effort to preempt tort suits against gunmakers, Congress has largely ignored this wave or regulatory litigation. One reason, Olson noted, is the relative ineffectiveness and short-sightedness of the business lobby. When one industry is under attack, most other business groups are likely to look the other way and hope they won’t be next. Moreover, Olson notes, Congress increasingly avoids potentially controversial issues and is institutionally averse to taking on such fights. So regulation by litigation continues, and is expanding into new areas, such as health care and environmental protection.
Michigan Supreme Court Justice Robert P. Young, Jr. sought to offer the “big picture” from the perspective of someone who is “behind the bench.” Justice Young said that judges are now the “primary lawgivers” in American society, so the judiciary has become the “loyal opposition.” The judiciary has usurped the powers that the constitutional framework allocates to other branches. The judiciary is not just regulating, “it is governing.” This is true not only with economic and traditional regulatory issues, but also in the social context, as when courts declare gay marriage is not only permissible, but constitutionally required. The result of such judicial overreach, Justice Young suggested, is a public backlash – as can be seen by the adoption of ballot measures against gay marriage in eleven states. Judicial activism in such areas may be more obvious, Justice Young suggested, but it is hardly more prevalent – it has simply sparked more public outrage, at least thus far. Yet the underlying problem is the same. The political branches were designed to adopt policies after deliberation and debate once there is sufficient popular support for a given action. In most cases, however, our political institutions will do nothing – which is what was intended. Thus, Justice Young suggested, the failure of legislatures to adopt particular legislative measures provides no justification for the judiciary to enter the breach. Moreover, judges are poorly suited or equipped to consider the various trade-offs involved in any given policy decision, particularly in the context of a given case. “I find it shocking that anyone would want to make courts the central players in a regulatory enterprise,” Justice Young said. “It’s time for a family intervention . . . Stop us before we regulate again.”
Moderator Judge Jeffrey Sutton, of the U.S. Court of Appeals for the Sixth Circuit, asked whether the same substantive complaints made against judicial approval of regulation by litigation could be made against the Supreme Court’s decisions restricting the extent of punitive damages. Justice Young agreed, suggesting the Supreme Court’s limits on punitive damages were created out of whole cloth. Punitive damages need to be controlled, Justice Young said, but it must be done by the legislature. Bob Levy disagreed, suggesting that there is a constitutional basis for limiting damages through the due process clause, even if the relevant Supreme Court decision did not do so in a constitutionally sound way. Walter Olson added that judicial limits on punitives can be justified where state courts base such damage awards on a nationwide course of conduct, and thereby risk extra-territorializing state liability rules.
One question challenged Walter Olson’s suggestion that federal legislation is a suitable (if even constitutional) means to address regulation by litigation. Olson acknowledged that such legislation does implicate non-trivial federalism concerns. In nationwide class actions and other product liability cases with national implications, however, state courts are assuming disproportionate power beyond that which was traditionally held by state courts within the federal system. So there is ample basis to subject such suits to federal scrutiny in such cases, and Olson believes Congress has sufficient constitutional authority to intervene. In some other types of tort cases, such as traditional slip-and-falls, however, Olson acknowledged there may be more significant constitutional barriers to some proposed tort reforms. Bob Levy suggested the constitutional limits on tort reform are more significant. Levy argued that some measures, such as medical malpractice reform, would not pass more stringent commerce clause scrutiny, as states are quite active in this area. |
