Sometimes paying to sue just doesn't pay. In a case with major national implications, the Alabama state Supreme Court gave a huge and well-deserved spanking Friday to Alabama Attorney General Troy King and the wealthy trial lawyers he is figuratively in bed with.
The 8-1 decision comes as a task force of the National Association of Attorneys General considers whether to recommend restrictions on how AGs can hire private plaintiffs' attorneys in search of legal jackpots. The NAAG ought to conclude that the more restrictions there are, the better.
Ever since the AGs' successful shakedowns of tobacco companies a decade ago, they and the trial bar have looked for the next big industry to fleece. In state after state, they have pursued what amount to cookie-cutter lawsuits against pharmaceutical companies.
The Alabama case purported that more than 70 drug companies caused the state to over-reimburse pharmacies and physicians for the medicines they provided to Medicaid patients. Even though the drug manufacturers themselves were not directly overreimbursed, Mr. King and his outside counsel purported that they benefited anyway through an elaborate scheme to increase their market shares.
The Alabama high court found this theory of indirect benefit a bit hard to credit. More important, the court found clear and convincing evidence that the state itself, not the drug companies, was responsible for any mispricing that occurred. The court noted that "as early as 1975," the federal government "cautioned against" the way the state was determining the price reimbursements.
For national purposes, though, the details of this case are less important than the underlying tendency it represents. Several "friend of the court" briefs addressed what one of them called "the growing trend of state attorneys general hiring private plaintiffs' lawyers, paid on a contingency fee basis, to sue entire industries and seek windfall awards" - sometimes in ways that directly undermine the careful judgment of legislators and appropriate regulators.
Writing for the court, Alabama Supreme Court Justice Thomas A. Woodall agreed that the Alabama suit was "an attempt to use tort law to re-define [Alabama's] Medicaid reimbursement obligations." Or, in short, it was what Justice Woodall described as illegitimate "regulation by litigation."
Obviously, what's in it for the trial lawyers is the chance to gain huge contingency fees. Even a 10 percent take of the $274 million at stake in the Alabama case would have made the attorneys rich. But, as the Wall Street Journal has detailed in a series of editorials this year, the AGs benefit because "the trial bar returns the favor with campaign donations to state office holders." In Pennsylvania, Oklahoma, New Mexico and Arkansas, the same Houston law firm has been plying AGs with campaign cash.
In the Alabama case, longtime kingpin trial lawyer Jere Beasley was carrying the case against the drug companies. Is it any wonder, then, that Mr. Beasley and his wife Sarah in 2006 donated a total of $50,000 in a single day, broken up among four separate political action committees all officially chaired by Montgomery lobbyist Johnny Crawford, only to have a fifth Crawford PAC donate the exact same total of $50,000 to Mr. King's campaign the very same day? (In Alabama, PACs are free to move money back and forth among each other as many times as they want.)
No, this isn't directly against the law, apparently, but it certainly looks unethical - something akin to what legendary New York state Sen. George Washington Plunkitt, the Tammany Hall machine politician, famously called "honest graft." The NAAG would be wise to rein in such honest graft, before some prosecutors decide that not all of it is so honest.