CLASS ACTION SQUARED: MULTISTATE ACTIONS AND AGENCY DILEMMAS.

AuthorDishman, Elysa M.

INTRODUCTION 292 I. PUBLIC, AND PRIVATE AGGREGATE LITIGATION: PARENS PATRIAE AND CLASS ACTIONS 297 A. Slate Attorneys General Powers and Enforcement Actions 297 1. Roles and Responsibilities of State Attorneys General 297 2. Parens Patriae Litigation Authority 299 3. Multistate Actions 303 B. Private Class Actions 308 1. Attributes of Class Actions 308 2. Agency Cost Critique of Class Actions 311 II. MULTISTATE ACTION AS CLASS ACTION SQUARED 315 A. The First Layer of "Class Action" 316 B. The Second Layer of "Class Action" 321 III. CLASS ACTION SQUARED AGENCY PROBLEMS 325 A. Borrow 325 B. Steal 329 IV. INCREASED MONITORING IN MULTISTATE ACTIONS 341 A. Increased Voter Monitoring 341 B. Increased Legislative Oversight 345 C. Increased Judicial Scrutiny 347 CONCLUSION 350 INTRODUCTION

Military generals understand the value of a good alliance. So do state attorneys general (AGs) who increasingly band together to pursue multistate actions. (1) AG alliances shift in multistate actions, often depending on their target. Highly partisan AG alliances have dominated recent multistate actions against the federal government, while broader bipartisan coalitions of AGs have formed in multistate actions against large corporations. (2) AGs face both opportunities and dilemmas in deciding whether to participate in multi-state actions against large corporations. On the one hand, by aggregating claims in a multistate action, AGs can leverage their combined resources to mount high-stakes litigation, reaping large settlements for their states and residents. These multistate settlements can serve to deter future corporate fraud and compensate victims. But on the other hand, participating in multi-state actions, ironically, can also undermine those same deterrence and compensation goals.

Class action lawsuits face a similar problem. Class actions aggregate numerous claims into a single lawsuit that would otherwise be too costly to bring individually. (3) They allow plaintiff's to receive compensation that they might otherwise forgo, and deter corporations from committing fraud that creates widespread harm but relatively small-scale individual damages. (4) But agency costs creep into class actions that undermine their ability to adequately compensate plaintiffs and properly deter corporate misconduct."' Agency costs occur when class counsel enters into "sweetheart settlements" that result in handsome fees for counsel while class members are left holding the bag--full of nearly worthless coupons."'

Recognizing this problem, the Supreme Court and policymakers have steadily restricted private class actions. (7) As they recede under judicial and regulatory pressure, a form of public aggregate litigation, parens patriae actions, have flourished. (8) AGs have authority to bring parens patriae actions on behalf of their states and state residents. (9) These actions closely resemble private class actions because claims of state residents are aggregated into a single lawsuit led by a "lead counsel," in the form of an AG. (10) However, parens patriae actions lack the procedural and legal requirements of class actions. (11) Recognizing the power of parens patriae actions to accomplish the goals of class actions without the same procedural hurdles, some scholars have called for the expansion of parens patriae actions as a means to fill the void left by the forced retreat of the class action. (12) Others have urged caution in embracing parens patriae actions because agency costs also arise in parens patriae actions like they do in class actions. (13) This observation has sparked a debate in the literature about whether parens patriae actions are in fact analogous to private class actions and the implications of the analogy on public enforcement. (14)

The conversation about class actions and parens patriae actions fails to consider an important development. It does not consider that AGs are increasingly acting together in multistate actions. (15) When AGs combine forces in multistate actions, the analogy to the class action compounds, and a second "class action" of a sort emerges. In this second "class action," AGs combine the aggregated claims of their states and states' residents. A few AGs lead this second "class" that resembles in a way how class counsel represents class members. This Article is the first to recognize that multistate actions are made up of two discrete layers where each layer can be analogized to a private class action, or what I dub "class action squared."

To date, the literature has not focused on multistate actions as being distinct from individual AG actions. As a result, multistate actions are understudied as a phenomenon and undertheorized in the literature. (16) This Article begins to fill the gap by theorizing about how agency problems arise in multistate actions and argues that unique agency costs arise in multistate actions by virtue of being "class action squared."

Agency problems in multistate actions are not simply doubled by virtue of being class action squared. Rather, new agency costs arise when two layers of "class action" interact in multistate actions. Put more simply, class action squared problems create temptations for AGs to "borrow" and "steal" from one another in multistate actions in ways they could not if they acted alone. AGs can "borrow" other states' more expansive enforcement statutes, even if a particular state legislature has made a policy judgment to the contrary. (17) And AGs can "steal" by allocating greater portions of settlements to their own states, with other AGs either oblivious or indifferent to the theft because of voter ignorance. Leading states in multistate settlements are regularly the states with the highest allocations of settlements, even if other participating states have larger populations or more affected state residents. (18)

Recognizing class action squared agency problems is important because multistate actions are drastically altering the enforcement landscape. Some of the largest and most important settlements in American history are multistate actions, such as the Master Settlement Agreement with tobacco manufacturers (19) and the National Mortgage Settlement with mortgage servicers. (20) Not only can multistate actions yield billion dollar settlements, but they can also require sweeping corporate reforms that regulate the way entire industries do business. (21) Understanding that agency problems arise in multistate actions raises the question of whether they are preferable to private class actions and challenges the notion that multistate action is necessarily better than states going it alone.

Identifying agency problems raises the question of what can be done to reduce them. Agency costs persist when principals lack the ability to effectively monitor agents. (22) This Article proposes different avenues to increase oversight of multistate actions to reduce class action squared problems. First, voters could more effectively monitor AGs if there were greater transparency about settlements. Second, legislatures could exercise greater oversight over AGs through their lawmaking and budgeting powers. Third, judges could apply greater scrutiny to proposed settlements in multistate actions. Increasing the ability of voters, the legislature, and the judiciary to monitor AGs' behavior would reduce unique class action squared problems.

This Article proceeds in four parts. Part I sets forth the attributes of parens patriae actions, multistate actions, and private class actions. Part II explores how multistate action is class action squared. Part III discusses the unique class action squared agency problems that arise in multistate litigalion, and Part IV considers some reforms to increase voter, legislative, and judicial monitoring to reduce agency problems in multistate actions.

  1. PUBLIC AND PRIVATE AGGREGATE LITIGATION: PARENS PATRIAE AND CLASS ACTIONS

    AGs are uniquely empowered to bring public aggregate litigation, called parens patriae actions, to benefit their states and state residents. (23) Private lawyers, also referred to as "private attorneys general," bring private aggregate litigation, such as class actions. (24) Both public and private aggregate litigation seek to compensate injuries and deter corporate misconduct. (25) However, public aggregate action has escaped much of the criticism aimed at class actions for agency cost problems. (26) As pressure has mounted on class actions, public aggregate litigation has thrived in recent years, in part due to the increased prominence of multistate actions.

    1. State Attorneys General Powers and Enforcement Actions

      AGs hold a unique state government office. They have broad authority to bring parens patriae actions for the benefit of their states and residents. Parens patriae actions aim to deter misconduct and increasingly seek public compensation for state residents. AGs are increasingly pursuing their parens patriae actions together in multistate actions.

      1. Roles and Responsibilities of State Attorneys General

        AGs hold a unique position in state government. In most states, the office of AG was either created or continued by state constitution. (27) Each of the fifty states and six territories of the United States have an AG's office or its functional equivalent. (28) The vast majority of AGs are directly elected statewide, although some AGs are appointed by other state officials or institutions. (29) Most AGs are elected to serve four-year terms. (30) The specific duties of AGs vary from state to state. However, the most important duties of the office include "control of litigation concerning the state;... providing formal opinions to clarify the law;... criminal law enforcement, primarily on the appellate level; law reform and legislative advocacy; and investigative authority." (31)

        AGs serve multiple constituencies in carrying out their duties. AGs have the broad power to "protect the public interest" and the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT