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Businesses may be used to private class actions by now, but when the plaintiffs bar joins forces with a state attorney general, the resulting lawsuit can pose a new and dangerous threat to defendants. But companies have good legal options as they respond. A familiar specter has haunted the business community for decades: lawyers who craft a class action, find a plaintiff in whose name it can be filed, and then use the suit to impose discomfort upon the defendant. Most such actions are defeated sooner or later. Many others are settled for a fee award and some benefit for the proposed class. But a few of these cases result in large judgments, and most impose large economic, reputational, and business disruption costs along the way. The Class Action Fairness Act of 2005 has made it harder for plaintiffs lawyers to obtain leverage against defendants through class actions, in part by shifting more of the suits to federal courts, where the governing substantive and procedural laws are more predictably and reliably enforced. Further, many trial and appellate judges are more rigorously scrutinizing class actions and throwing more bad ones out. STARTING WITH TOBACCO As traditional class actions become a less reliable tactic for attacking business interests, a new one has emerged. Instead of finding a class to represent, plaintiffs lawyers are representing some state attorneys general in cases brought on behalf of the states and their citizens. The trend began in the 1990s, when several attorneys general filed lawsuits against the tobacco companies. Settlements generated multibillion-dollar awards for the states, huge fees for the private lawyers who represented them, and political renown for the sponsoring attorneys general. Then-New York Attorney General (and current governor) Eliot Spitzer furthered the trend with his wave of enforcement actions against brokerage and insurance firms, and other attorneys general are trying to emulate his success. Such private attorney-led state attorney general suits can be more difficult to defend than the typical class action. For one thing, the plaintiffs lawyers do not have to persuade a judge to certify a class and put them in charge of it, because they hold the attorney general’s power to sue on behalf of the state and its citizens. Further, the civil fraud and consumer protection laws that attorneys general invoke often contain vague standards of misconduct, making it hard for a defendant to terminate the case before trial. Those laws also allow courts to impose upon losing defendants a sizable fine or bans on conducting future business with the state for mere technical violations of the law, often without requiring proof that the defendant’s conduct caused any harm. The suit will probably be brought initially in a state court, before an elected or appointed judge who has many incentives to favor the attorney general of his state over an out-of-state corporation. Juries may also be more receptive to the arguments of a “special assistant attorney general” deputized to do justice for the citizenry than those of a run-of-the-mill private trial lawyer. DIFFERENT STRATEGIES Although lawsuits brought by state attorneys general (often through private counsel) impose as much or more of a threat than do traditional class actions, the differences between the two kinds of suits require defendants to use different strategies. Here are a few strategies that defendants might consider when responding to attorney general lawsuits. • Removal to federal court: If (as usually occurs) the case was filed in state court, the defendant should remove the case to federal court if possible. It can be difficult for an out-of-state corporation to obtain a fair hearing before a state judge who may have reasons to favor the attorney general over an out-of-state corporation or who may have received campaign contributions from or have other close relations with the plaintiffs attorneys. Also, if many attorneys general are filing similar lawsuits against the same company over the same conduct, removal to federal court can allow the federal Judicial Panel on Multidistrict Litigation to consolidate all such actions for pretrial purposes, such as discovery and motions activity, before a single federal district court. Finding grounds for removal can be challenging, because the state does not count as a party for purposes of diversity jurisdiction. It is therefore important to examine the complaint for any substantial federal questions lurking within what is nominally a lawsuit framed as arising under state law. In Grable & Sons Metal Products v. Darue Engineering & Manufacturing (2005), the U.S. Supreme Court held that the relevant inquiry for determining whether a substantial federal question exists in a purportedly state-law-based complaint is a holistic one. Rejecting bright-line rules such as whether the substantial federal question is one as to which a private right of action exists, the Court instead held that federal-question jurisdiction exists if the court would likely find itself called upon to interpret and apply federal statutes or regulations in a way that makes it institutionally more appropriate for the case to be heard by a federal judge. Grable therefore permits a wider range of removals than a more singular and precise test would allow. For example, many state attorney general suits attack business activities that are exclusively regulated by federal agencies. Hence, what is nominally a deceptive-trade-practices action under state law may bring into play federal statutes and regulations that govern the challenged conduct. Such issues may provide a basis for removal to federal court. • Propriety of private counsel’s appointment: Defendants should investigate and, if warranted, challenge the propriety of the attorney general’s appointment of private counsel. Discovery requests or state-level Freedom of Information Act requests for the retention agreement between the attorney general and private counsel will usually allow the defendant to obtain the terms of the retention. Many states prohibit outright the retention of private counsel to represent the state on a contingent-fee basis or otherwise establish substantive and procedural rules for contracting out litigation work. There also may be state ethical rules that regulate the retention, especially if the private lawyers have contributed to the attorney general’s or other state officials’ campaigns or have other financial relationships (or legal conflicts) with the state government. An investigation into the private counsel’s appointment may result in private attorneys being disqualified on state procurement or ethical grounds. • Dispositive motions: Many private attorney general actions are brought under laws that protect against consumer fraud — in other words, deceptive practices that induce consumers to purchase, or pay too much for, worthless goods and services. Many suits seek to apply such statutes to transactions for which they were not designed. Lawsuits are sometimes brought challenging corporate conduct that had nothing to do with products purchased directly by consumers or that concern representations not made to consumers. For example, lawsuits invoking consumer trade acts or Medicaid fraud acts to attack pharmaceutical companies for selling drugs that the attorney general contends are defective, or for making statements to doctors about the risks and benefits of such drugs with which the attorney general disagrees, may constitute a misuse of the statutes. By moving to dismiss such actions on the pleadings, or by moving for summary judgment after an evidentiary record is created, defendants can force the attorney general to justify the attempted expansion of the law to apply to conduct that the legislature did not intend to regulate. • Discovery: An advantage that defendants have in private attorney general suits that they often lack in conventional class actions is the ability to obtain substantive discovery. Unlike token named plaintiffs in private class actions, the plaintiff state often has detailed records relevant to the allegations. In suits on behalf of the state, these records may yield evidence about the actual interactions between the applicable state agencies and the defendant. Such discovery may reveal that the knowledgeable officials of the relevant state agency have no quarrel with the defendant’s conduct, disagree with the allegations being advanced in their name by the attorney general, and believe that the lawsuit is without merit. Even when the attorney general sues on behalf of the state’s citizens, the state’s records can be a useful source of information in debating whether the defendant engaged in misconduct. For example, in actions brought on behalf of state citizens against automobile manufacturers alleging a defect in certain vehicles, the state may own a fleet of the vehicles at issue, and state records concerning the performance of the vehicles, or the fact that state procurement officers continue to buy the cars despite the suit, may reveal a tacit admission that no defect exists. • Trial: Finally, if the defendant believes that the challenged conduct has been proper and that a common-sense jury would recognize that, the defendant should resolve to try the case. Defendants should not assume that jurors will automatically rule for the attorney general just because of his position or because the lawyer representing the attorney general implies that a verdict for the state will benefit jurors. The assumption that jurors will naturally sympathize with a “regular person” plaintiff victimized by an evil defendant does not necessarily apply when the plaintiff is a powerful (and possibly controversial) politician or state bureaucracy that the jurors may not entirely trust to look out for the citizens. Where the defendant’s conduct has been above-board, and where the lawsuit has the aura of a strike suit or an attempt by an ambitious attorney general to inject himself into matters that are beyond his expertise and legitimate mandate, it is perfectly appropriate (and potentially persuasive) for the defendant to put the facts on the table, invite the jury to consider the true motivations for the lawsuit, and ask the jury to reject an attorney general’s overreaching allegations. Demonstrating the resolve to try meritless attorney general actions also may lead to the withdrawal of the action. Regrettably, some attorneys general (and their private counsel) bring lawsuits not with the intent to actually try them but in the hopes that their institutional advantage will intimidate defendants to settle on the plaintiff’s terms. Making it clear that the defendant will not settle, but will challenge the attorney general to a highly public debate over the propriety of his lawsuit, may lead to the withdrawal of the action and to the disinclination to file additional frivolous actions against such defendants. In short, the increasingly common practice of some state attorneys general to hire members of the plaintiffs bar to bring lawsuits against out-of-state corporations poses dangers to corporations that conventional class actions do not. But such lawsuits also have unique vulnerabilities. By vigorously defending against those lawsuits that lack merit through intense focus on their factual or legal weaknesses, corporations may eventually encourage state law enforcement officials to take a pass on contrived lawsuits and focus on prosecuting real wrongdoers.
Brian Anderson is a partner and Amber Taylor is an associate at O’Melveny & Myers in Washington, D.C. They are both members of the firm’s class actions, mass tort, and aggregated litigation practice group, where they regularly defend clients against class actions and attorney general actions.

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