Law Suits: Big tobacco, AGs at odds


USA Big tobacco companies and state attorneys general do not trust each other any more.

AGs Gone Wild
November 13, 2007; Page A24
District Attorneys have “National Prosecution Standards.” U.S. Attorneys have their own ethics manual. But what about state Attorneys General? They get to make everything up as they go, as their increasingly aggressive prosecutions are showing.
The problem is laid out in a new report by the Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce, that deserves more publicity. State AGs have no uniform rules governing their conduct, and whatever procedures are in place for initiating investigations and litigating are largely hidden from public view. This includes guidelines on the use of outside trial lawyers; the use of settlement funds; multistate litigation; and public statements regarding an investigation or ongoing trial.
When the Institute commissioned a blind survey of the nation’s 51 AGs, only 14 responded. Among those who did, a majority had no standard in place for determining whether to launch an investigation, and none “were able to cite state laws, regulations, office policies or ethical rules that require notice be provided to a defendant company prior to bringing criminal charges.”
This lack of transparency is all the more troubling given that state AGs are increasingly assailing long-standing business practices, often driven by a political agenda as much as by a duty to enforce the law. As the old joke goes, “AG” stands for “aspiring Governor.” And no one epitomized this better than New York’s current Governor Eliot Spitzer. In his previous job as AG, Mr. Spitzer regularly threatened criminal prosecution in order to extract settlements in civil suits and win headlines. (Think AIG and Hank Greenberg.) But he’s hardly alone.
Rhode Island Attorney General Patrick Lynch dropped the DuPont Corporation from a lead paint lawsuit in 2005 after the company agreed to donate $12 million to charity. Most of the money went to charities based outside of the state, including a hospital in Boston. The settlement money is being used to satisfy a pledge to the hospital made previously by Motley Rice, which happens to be the plaintiffs firm hired by the state to pursue the case on a contingency fee basis. Motley Rice counsel John McConnell is a campaign contributor to Mr. Lynch, who’s been sanctioned twice for comments to the press about the paint litigation.
West Virginia taxpayers already finance an in-house legal staff of nearly 200. Yet last year Darrell McGraw, the state Attorney General, deputized two personal injury attorneys to file lawsuits on behalf of the state. The lawyers had donated to Mr. McGraw’s political campaign and were hired to subpoena records from a company they were already suing in private civil litigation. In effect, two McGraw campaign contributors were given the power of the state to conduct discovery for their private litigation.
In 2004, Mr. McGraw extracted a $10 million settlement from Purdue Pharma in a lawsuit filed on behalf of state agencies. A third of the settlement went to lawyers who worked on the case. And aside from a $250,000 payment to the state health department, little of the money has been returned to the agencies named in the initial suit. Instead, Mr. McGraw has doled out the money in grants to his own favorite institutions and projects, however unrelated to the case. The University of Charleston received $500,000 from the AG for a new pharmacy school.
In Mississippi, Attorney General Jim Hood has made a habit of hiring profit-seeking private lawyers — who’ve supported him politically — as outside counsel to represent the state. In California, former AG Bill Lockyer concealed more than a hundred million dollars’ worth of contracts with lobbyists and private law firms, labeling them confidential to block public oversight. Many were no-bid contracts that went to firms with ties to Mr. Lockyer.
We could go on, but you get the idea. Because most state AGs are elected, they are ultimately accountable to voters. But it wouldn’t hurt to have some common legal parameters that also protect the due process rights of their targets. To that end, the Institute for Legal Reform has proposed a code of conduct for state AGs.
The code includes nothing that shouldn’t already be Legal Ethics 101, such as refraining from public comments that could prejudice a case, and not threatening companies with criminal action to gain advantage in a civil suit. If bringing in outside lawyers is necessary because an AG’s office lacks the expertise or manpower to try a case, then paying them hourly instead of on a contingency basis would minimize a gross conflict of interests.
These guidelines ought to be more than acceptable to public servants who wield great power and claim to be ethical watchdogs themselves. That they are consistently ignored — from coast to coast — suggests that the political system needs to start imposing some accountability on AGs gone wild.
Wall Street Journal

Tobacco settlement robs Peter to pay Paul, says economist in latest Milken Institute Review

For Immediate Release
October 20, 2006
When the major tobacco companies agreed in 1998 to settle a series of lawsuits filed by eight state attorneys general, the agreement was hailed as an historic event that would add hundreds of billions of dollars to state coffers and give millions of smokers a new incentive to quit.
But Stanford University economist Jeremy Bulow argues in the latest Milken Institute Review that the public was conned: the tobacco companies passed on more than 100 percent of the cost to smokers, many states were locked into terrible financial settlements and billions in fees were set aside for trial lawyers.
“Few people trust tobacco companies, trial lawyers or politicians,” he writes. “But somehow when the three groups got together and spoke with one voice they were able to convince most people – particularly nonsmokers who benefit from higher cigarette tax revenue – that the settlement had achieved a noble public health goal. In reality, the settlement preserved tobacco companies’ profits, while it gave the trial lawyers an incredibly large ongoing source of income gouged from the hides of smokers, and handed state politicians bragging rights as Davids to Big Tobacco’s Goliath.”
Also in this issue of the Milken Institute’s quarterly journal of economic policy, two researchers at the Fraser Institute weigh the pros and cons of Canada’s government-run, universal health-care system, which has long been held up as a model for the United States.
Nadeem Esmail, director of Fraser’s Health System Performance Studies, and Michael Walker, president of the Fraser Institute Foundation, conclude that, in terms of health outcomes (i.e. preventable deaths), there isn’t a lot of difference between Canada’s system and America’s. But in terms of patient frustration and delays in non-emergency service, U.S. residents generally fare better.
“Canada’s single-payer system delivers on the promise of universal access, but at a price that reflects its failure to use market-based incentives to ration services and to maximize the efficiency of their delivery,” they write. “It’s hard to imagine that planners who started afresh couldn’t do better.”
Other highlights from the new Review:
* Robert Looney of the Naval Postgraduate School in Monterey, Calif., examines the economic boom in Dubai, which has become the place in the Middle East for jetsetters and investors lured by its wide-open economy, low taxes and first-rate infrastructure. “The wealth created by the world-class firms attracted to the emirate proves that Dubai Inc. is much more than a mirage. Whether Dubai Inc. is a paradigm for other Arab countries, though, is another question.”
* Edward Miguel and G?rard Roland of the University of California (Berkeley) assess the enduring consequences of America’s bombing of Vietnam and conclude that the worst-hit areas have caught up with the rest of the economy. “We found no robust long-run effect of the bombing on local poverty, consumption or population density in Vietnam a quarter century after the end of the ‘American War.’ If anything, the bulk of the statistical evidence points to moderate reductions in long-run poverty and somewhat better access to electricity in the areas most damaged by bombing, as well as faster consumption growth.”
* Kevin Cullen of the University of Glasgow writes that many universities are caught between a rock and a hard place in pleasing constituents eager to benefit from technology originating in academics’ research labs. “The key here is an understanding of what universities are being asked to do. If you want them to advance economic development, that’s fine. Just understand that such projects require subsidies. If you want universities to make money from commercialization, that’s fine, too. Just understand that the commercial motive will often not align with regional aspirations.”
* Linda Bilmes of Harvard’s Kennedy School of Government and Nobel laureate Joseph Stiglitz of Columbia University argue that the price tag for the war in Iraq – estimated at $1 trillion in an article in the last issue of the Review – will, in fact, top $2 trillion. “A major contributor to this long-term cost is the medical care and disability benefits provided to veterans. More than one million U.S. troops have now served in Iraq. And once they leave, each is entitled to a long list of benefits for the remainder of his or her life.”
This issue’s book excerpt comes from Knowledge and the Wealth of Nations by David Warsh, a former economics columnist for the Boston Globe, who offers a witty and graceful capsule history of the coming of age of modern, mathematically based economics. Also in this issue: a Charticle by Milken Institute economists outlining the dramatic increase in terrorist incidents around the world since the mid-1990s; “Research F.Y.I.”; and another offbeat, end-of-book “Lists.”
The Milken Institute Review is sent quarterly to the world’s leading business and financial executives, senior policy makers and journalists. Its editor is Peter Passell, former economics columnist for The New York Times.
Skip Rimer, Director of Communications
(310) 570-4654
About the Institute: The Milken Institute is a nonprofit, independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. It is based in Santa Monica, CA. (

Report shows big tobacco, AGs at odds

June 28, 2006
By Steve Korris (

Big tobacco companies and state attorneys general do not trust each other any more.

Their 1998 agreement has dissolved into a bunch of disagreements, according to a report that a consultant for both sides prepared.

Cigarette makers and attorneys general cannot even agree on a definition of the most important word in the agreement.

The feud became public in March, when cigarette makers announced that findings of the Brattle Group, of San Francisco, would allow them to reduce payments to states.

The Brattle Group found that companies in the agreement lost shares of the cigarette market to companies outside the agreement.

That finding alone did not allow adjustment of payments. Companies qualified for adjustment because the Brattle Group found that the agreement was a “significant factor” in the loss of market shares.

The report remained confidential until June, when a judge ordered its public release.

West Virginia Attorney General Darrell McGraw and attorney generals of 45 other states signed the agreement. Four states had signed separate agreements. McGraw has claimed credit as a leader of negotiations that led to the agreement.

The National Association of Attorneys General released the report after smearing Wite-Out over sections its members wished to keep secret.

No amount of whitewashing could hide the suspicions between the parties or the difficulties the Brattle Group encountered in trying to satisfy both sides.

Before the Brattle Group could decide if the agreement was a significant factor in the loss of market shares, someone had to define significant.

States defined it as major, substantial or important. Cigarette makers defined it as more than negligible.

The Brattle Group wriggled out of the jam by breaking a grammar school rule that forbids defining a word by using the word.

It declared that a significant factor was one that has “significant explanatory power.”

To measure the impact of the agreement the Brattle Group needed to paint a picture of a world without the agreement. Here again, the partners took different views.

They hired professors who crafted a “but for world” with elaborate equations. Again the consultants could not bring themselves to choose one over another.

They wrote, “…there are many degrees of freedom that can and do cause differences…”

They wrote, “…the Firm views the results from each of the datasets as being of considerable importance.”

Falling back on the obvious they wrote that, “…the Firm generally views more data over a longer time period to be preferable to fewer data over a shorter time period.”

The Brattle Group also danced around the question of whether companies outside the agreement have evaded laws that aimed at canceling any competitive advantage that they would otherwise gain by staying out of the agreement.

States argued that evasion by nonparticipating manufacturers was a result not of the agreement but of deliberate decisions to break laws.

Cigarette makers argued for direct impact. The Brattle Group agreed but refused to add evasion to their equations on the grounds that they had already implicitly included it.

At the creepiest point in the report, the consultants quoted an argument of the states that cigarette makers could deliberately lose market share in order to qualify for adjustments.

The parties also disagreed over which side should carry the burden of persuasion.

States recommended placing the burden on companies because error against states would bring greater consequences than error against companies.

The Brattle Group wriggled out by declaring that neither side carried the burden.

Near the end of the 164-page report, as the consultants combine the models of But For World, the Wite-Out flowed freely.
Paragraph 312, which took up all of page 136, has disappeared.
Paragraph 314 has disappeared.
Paragraph 316 says only, “The Firm proceeds with additional systems estimates -“
Paragraphs 317 through 319 have disappeared.
Paragraph 320 ends with the words, “In addition -“
Figure 18 has disappeared.
Paragraph 323 says only, “Results for the -“
Table 8 and Figure 19 have disappeared.
Paragraph 343 declares that Table 12 sets forth the most relevant results, but the first three lines of Table 12 have disappeared.

The consultants concluded that companies which stayed out of the agreement held 7.95 percent of the market and that they had realized three and a half to four percentage points by staying out.

They wrote, “A reasonable economist would view a factor that explained 3.5 to 4.0 percentage points of a 7.95 percent impact as having significant explanatory powers.”

On tax day, April 15, some companies reduced payments to states on 2005 sales in light of the report. Others paid in full but reserved the right to seek refunds.

In May, the National Association of Attorneys General asked the United States Supreme Court to intervene in the payment dispute. The Court has received initial briefs.

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