Über die Autorin bzw. den Autor

Andrew P. Morriss is H. Ross and Helen Workman Professor of Law and Professor of Business, University of Illinois, Urbana-Champaign, IL. He lives in Fisher, IL. Bruce Yandle is Alumni Distinguished Professor of Economics Emeritus, Clemson University. He lives in Clemson, SC. Andrew Dorchak is Head of Reference and Foreign/International Law Specialist, Case Western Reserve University School of Law Library. He lives in Cleveland, OH.

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Regulation by Litigation

Yale University Press

Contents

Acknowledgments...........................................ix1 Introduction............................................12 The Regulator's Dilemma.................................163 Modes of Regulation.....................................364 Heavy-Duty Diesel-Engine Litigation.....................555 Dust Litigation.........................................936 Tobacco Litigation......................................1267 What Have We Learned?...................................160Notes.....................................................179References................................................243Index.....................................................267

Chapter One

The U.S. Environmental Protection Agency (EPA) sued every heavy-duty diesel-engine manufacturer and obtained major substantive regulatory concessions from the industry in settlements of lawsuits. A small number of personal-injury lawyers sued thousands of companies over asbestos exposure on behalf of hundreds of thousands of former workers and found themselves playing major roles in restructuring companies through bankruptcy proceedings. Forty-six state attorneys general sued every major cigarette company in the United States-with the assistance of many of the lawyers who pioneered the asbestos litigation-and imposed major regulatory provisions and the equivalent of a tax increase through settlement agreements.

What do these events have in common? They are all examples of a new trend in regulation: regulation-by-litigation.

Six years ago, we embarked on an investigation of this new form of regulation taking hold in both state and federal courts. Regulation-by-litigation, as this new phenomenon became known, uses litigation and the courts to achieve and apply regulatory outcomes to entire industries. Lawyers, both private and public, were bringing suits and achieving ends that could be and traditionally had been achieved by regulatory agencies using rulemaking procedures. Indeed, in some cases, regulatory agencies were using both regulation and litigation against the same parties to achieve multiple regulatory outcomes.

The rise of regulation-by-litigation raises a host of questions that challenge scholars to explain what is going on. And from a policy standpoint, regulation by litigation comes with a number of troubling issues. Chief among these is the relative lack of due process afforded when litigation supplants traditional notice-and-public-comment rulemaking, which allows for participation by all interested parties. Another concern is that regulatory agencies, which have imposed and are enforcing rules on an industry, "take another bite from the apple" by then bringing suit against the same industry and coercing agreement to a settlement that imposes additional regulations.

For us, the three authors, regulation-by-litigation builds a mixture from two phenomena we have investigated separately. The three of us have for years studied, written about, and taught courses in regulation that focus on rules developed and enforced by regulatory agencies operating within a legislative framework that imposes accountability, boundaries, and due process on regulators. At the federal level these rules are defined largely by the Administrative Procedure Act. At the state level, various statutes accomplish similar ends. Although we sometimes are critical of regulatory outcomes that seem misguided, ineffective, or unduly costly, we nonetheless recognize that the regulatory process requires that notice be given to interested parties, that interested parties have an opportunity to participate in regulatory proceedings, that regulatory agencies provide due process, and that parties be permitted to appeal to a federal court and ultimately to the legislative body that empowers the regulator.

We have also taught, researched, and written on various aspects of litigation, and we understand how regulatory agencies often bring enforcement actions against parties who fail to comply with regulations. The regulators litigate to gain compliance. We understand how private and public tort actions are brought against firms that impose harms on individuals and their agents. We recognize that successful private and public litigation does bring about changes in the behavior of defendants through injunctions and the payment of damages and might therefore be thought of as being regulatory. But although the outcome of one controversy at law may generate voluntary changes in behavior beyond the parties to a controversy, perhaps even across an industry, the litigation itself and the related court rulings cannot mandate prospective changes to an entire industry. By contrast, regulation-by-litigation can and does impose forward-looking regulatory constraints on an entire industry.

In our research on regulation-by-litigation, we have found cases in which federal regulatory agencies have settled suits by imposing detailed prospective regulatory requirements on all members of an industry that is being regulated by the same regulatory agency. We have found cases in which state attorneys general have brought and settled coordinated suits against an industry with settlement agreements that require marketing changes and the payment of fines for indefinite periods of time. And we have found cases in which the plaintiffs' bar has organized mass tort suits against members of an industry so that the outcomes of the suits result in total industry regulation.

In organizing the regulation-by-litigation stories that fill this book we seek to do more than present a set of carefully researched episodes that describe a new regulatory phenomenon, though we have certainly endeavored to accomplish that end. It is our purpose to go beyond the presentation of facts to achieve an explanation of why, when, and how the episodes occurred. To accomplish this goal, we must consider the canons of public choice, apply theories of regulation, and use the power of economic logic to explain human behavior. Indeed, it is the application of these concepts that forms the distinguishing feature of this book. We emphasize the importance of laying a theoretical foundation that will help explain regulation-by-litigation as an alternative regulatory phenomenon. We hope that the theoretical framework we develop will prove helpful when applied to future regulation episodes. We are clearly working at the foundation level; we are not at a point where we can randomly draw a sample of such cases and test our theories. Let us now give some background on the concepts we will apply and explain how they relate to regulation-by-litigation.

Canons of Public Choice

Public choice is a well-established field of inquiry that uses economic logic to explain political decision making. The power of public-choice concepts to predict and explain political behavior rests on a simple notion: politicians and bureaucrats are people just like the rest of us; they carefully weigh costs and benefits when taking actions. And like the rest of us, they seek to enhance their own wealth, which is to say, they want to keep their jobs.

For politicians, staying employed requires votes, and securing enough votes requires engaging in costly campaigns and advertising programs. And like the rest of us, politicians are rationally ignorant. They cannot know everything and so...