State Attorneys General Make It Rain

Since my last post on state attorneys general George Will has chimed in on Oklahoma Attorney General Scott Pruitt and his leadership role in reviving federalism. And The New York Times has published an extended piece on the joined-at-the-hip connections between Democratic state AGs and the trial bar. Plaintiffs’ lawyers peddle cases against this, that, and the other industry to state AGs, who then sue and cut the trial lawyers in on the proceeds. A portion of those proceeds in turn ends up in the AGs’ campaign coffers. Amazing stuff.

Reading the story, you’ll note that it’s entirely about small-state Democratic AGs, present (e.g. Mississippi’s Jim Hood) and former (e.g. Mike Moore, likewise from Mississippi and now in the case-peddling business). Not a word about Kamala Harris (California), Eric Schneiderman (New York), or Martha Coakley (Massachusetts). How come?

After helpful consultation with a true expert (Paul Nolette, mentioned in the earlier post), here’s the likely answer: AG offices in those states are very well staffed. They can and do bring policy-making and big-recovery cases on their own, without the trial lawyers’ help. Also, in Mississippi or New Mexico trial lawyers are the only liberals with money, so you have to keep them close. In New York or California, the donor base is broader.

Here’s the larger problem, though: if the billion-dollar “recoveries” in state AG-led litigation don’t go to plaintiffs’ lawyers, where do they go? State practices vary, and little is known about this netherworld. But only a few options exist, and none of them are attractive.

Let AGs “eat what they kill,” and let them fund their offices through “settlements”? That creates alarming incentives (and may in some circumstances produce due process problems).

Give the money to the purported victims? The glitch is that in most of these cases there are no victims. Even when they do exist they often can’t be found or identified, and the process of distributing the funds to a heterogeneous mass of people would be near-random and absurdly expensive. In these situations, AGs increasingly make so-called cy pres distributions to outfits that, supposedly, protect and promote the alleged victims’ interests. In practice, it means that the money goes to the AG’s friends—various hangers-on in the “fair housing” or “teen smoking” industry, or the AG’s law school alma mater for yet another law school clinic.

Why not provide that all recoveries are to be deposited in the state treasury (technically, the arrangement at the federal level)? Also not good: you’d be turning AGs into profit centers for cash-strapped legislatures, and litigation into tax substitution.

Even if we think (implausibly to my mind) that the vast sums collected in AG-led litigation serve some social purpose, we should acknowledge that the proceeds will corrupt somebody. To minimize that risk, responsible states should provide for the least corrupting, least-crazed-incentive distribution: toss the money from a helicopter.