Commentary: Putting the Brakes on “Sue and Settle” (October, 2017)

by John McClaughryJohn McClaughry

Back in 1999 Robert Reich, President Clinton’s very liberal ex-Secretary of Labor, penned an op ed piece that said “The era of big government may be over, but the era of regulation through litigation has just begun.”

Reich argued that Congress, since 1994 under the control of pro-business Republicans, will not enact liberal proposals for regulating and taxing the tobacco and firearms industries, and it won’t change the antitrust laws to benefit the competitors of Microsoft. Therefore, wrote Reich, forget Congress – we’ll sue. He conceded that this regulation through litigation isn’t efficient, and may not serve the public interest, but “perhaps regulating through lawsuits is better than not regulating at all.”

As I wrote back then, “The result of this new strategy has been a rash of novel lawsuits and expansive judicial holdings, pressed by flamboyant trial lawyers allied with liberal politicians. Thanks to their aggressive advocacy, courts are abandoning long-established tort law precedents to hand down what only yesterday were considered to be purely legislative decisions. In 87 recent cases, courts have overturned legislatively-enacted limits on extravagant damage awards. Courts are even awarding damages where no injury has been demonstrated.”

Here in Vermont, a group of out of state trial lawyers appeared to propose to attorney general William Sorrell that he appoint them to sue the tobacco industry. Unlike traditional tort suits, where a lifelong smoker seeks damages for health injuries from smoking, the new attack would be brought on behalf of the State itself.  Instead of putting smokers on the witness stand where they could be cross-examined, the State would only need to exhibit Medicaid statistics on smoking-related Medicaid expenses.

The ultimate goal of this “regulation and taxation through litigation” is to force selected industries to the wall. It threatens them with extinction, then lets them off in return for accepting judicially-decreed regulatory controls and paying what amounts to extortion, up to a third of which ends up in the pockets of the plaintiff attorneys.

This is profoundly anti-democratic. No legislator ever votes on this expanded regulatory control, and the cost of the judicially-imposed regulations turns up as an unlegislated hidden tax in the price of the products.

Back then the thrust was on expanding tort law, but that’s not the only area where “sue and settle” litigation is now common. Here’s a typical scenario.

An environmental group files suit against the Environmental Protection Agency (EPA) demanding that it enforce the group’s interpretation of environmental laws on businesses, landowners, and municipalities. Then the group’s lawyers huddle with the EPA lawyers, many of whom are in full sympathy with the demands for stricter regulation.

If the plaintiffs’ lawyers win most of their demands in this closed door negotiation, both parties will seek a judicial consent decree – often including taxpayer financing of the “prevailing” plaintiff’s legal costs – and drop the lawsuit. The EPA bureaucrats, with no authority from elected lawmakers, will then use the authority of the consent decree to put the regulatory hammer down on the targeted businesses, landowners, municipalities, and others.

“Sue and settle”, at least at EPA, took a body blow last week. Since 2009 EPA agreements with environmental groups have resulted in 137 new Clean Air Act regulations. The costs of several of these rules run well into the billions, including some of the most expensive ever written.

Administrator Scott Pruitt announced that EPA would stop participating in this undemocratic charade, because “it forecloses meaningful public participation in rulemaking, effectively forces the Agency to reach certain regulatory outcomes, and costs the American taxpayer millions of dollars.”

Among other steps, Pruitt promised to publish a list of consent decrees and settlement agreements that govern Agency actions within 30 days, along with any attorney fees paid, and open public hearings on request.

Breaking up these “sue and settle deals” at EPA is a huge step forward for the public interest. EPA Administrator Pruitt, who will attract an avalanche of abuse from the “sue and settle” industry, deserves a lot of credit for putting an end to the practice. Vermont could well emulate his decision.

- John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org)

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