®: CRE Regulatory Action of the WeekCRE Paper on Regulation Through Private Litigation
CRE is releasing its position paper on Regulation Through Private Litigation, a new escalation in the trend whereby private interest groups use the judicial system to achieve regulatory results they could not obtain through normal legislative or regulatory processes. Regulation Through Private Litigation occurs when private parties (i.e., without government sponsorship) use the court system as a backdoor way to regulate entire industries.
This dangerous new trend is represented by the recently filed lawsuit against Smithfield Hams, Inc., in which environmentalist groups are seeking to hold an individual company liable for the remediation of entire river systems in the State of North Carolina. The Smithfield Hams lawsuit is setting a precedent for a large number of other industries. The CRE position paper recommends specific strategies the new Administration could adopt to address this development.
Regulation Through Private Litigation - The Smithfield Hams Lawsuit as an Escalation of an Existing Trend
The lawsuit of Neuse River Foundation, Inc. v. Smithfield Foods, Inc. ("Smithfield lawsuit"), filed in August of 2000, represents a dangerous new development in the trend of "regulation through litigation. Prior to the filing of this lawsuit, "regulation through litigation" was thought to be limited to situations in which government officials contract with private law firms to prosecute litigation aimed at coercing private companies and industries to comply with regulatory goals not obtainable through normal legislative and regulatory processes.
The Smithfield lawsuit, however, represents a new escalation, in that private groups, acting in what they believe to be the public interest, are using litigation as a means to impose regulatory goals and draconian penalties on entire industries. In doing so, these private groups are usurping the policy-making authority that is supposed to be vested in and share by all of the American people acting through normal legislative and rulemaking processes. As such, the Smithfield lawsuit represents a threat to other industries that may next be targeted for such litigation, as well as to the integrity of the constitutional system of separation of powers.
A. The Smithfield Hams Lawsuit.
Significantly, the Complaint does not mention any federal environmental statute by name. Instead, the Complaint obliquely references mediation efforts with North Carolina environmental officials, but asserts the following causes of action based on state law:
The Smithfield plaintiffs are seeking the following damages:
These damages - especially those seeking the remediation of entire river systems - are tantamount to adjudicative regulatory actions that would normally be undertaken by a federal or state environmental regulatory authority acting pursuant to and subject to the limitations set forth in the applicable statutes and regulations. Here, however, the plaintiffs are seeking to remove such regulatory authority from the Executive Branch to the Judicial Branch. The plaintiffs have acknowledged that they have filed this lawsuit to achieve a regulatory result that they were unable to obtain from the legislators or the regulators.
In terms of litigation strategy, the Smithfield plaintiffs' reliance on state law theories of recovery, and the manner in which the plaintiffs structured their claims generally can be explained by three factors:
Although the question has not been fully resolved, the courts generally find preemption where the complaint alleges that the source of the pollution is in one state, and the resulting damages in other. On the other hand, where both the source and the harm occur in the same state, and the complaint does not seek federal forms of relief, state law remedies will not be preempted.1
From this perspective, it is clear that the Smithfield plaintiffs have structured their lawsuit in such a way that a North Carolina company, acting solely in North Carolina, is alleged to have caused harm solely in North Carolina. The plaintiffs are clearly attempting to avoid any preemption that would deprive them of the ability to take advantage of state law claims and remedies.
The federal environmental statutes allow a private plaintiff to file a "citizen suit" against a violator, even though that plaintiff may have suffered no greater harm than any other member of the community. The damage remedy extends beyond immediate damage to the particular plaintiff, so that the plaintiff can act as a public enforcer of a regulatory policy established through normal democratic legislative procedures.
However, in exchange for this new, congressionally carved-out right to sue on the public's behalf for damages not (or beyond those) actually suffered by the plaintiff, the available remedy is limited to the narrow, prospective injunctive relief expressly set forth in the statute; punitive damages are not listed and hence should not be allowed.
This is in contradistinction to private plaintiffs (e.g., the Smithfield plaintiffs) litigating causes of action and remedies recognized by state common law. These plaintiffs can seek punitive damages to the extent allowed by state law, but should only have standing to pursue such remedies to the extent that the individual plaintiffs have been individually harmed. In other words, common-law plaintiffs should not be allowed to seek common law damages on behalf of the public at large.
Put another way, a federal statutory claimant should be entitled to broader standing but narrower remedies; a state common law claimant should be entitled to more extensive state law remedies, but access to such remedies should be limited to the harm directly suffered by individual plaintiffs. Yet in the Smithfield litigation, the plaintiffs are seeking to have their proverbial cake and eat it too. The Smithfield plaintiffs are seeking both the broader standing and unlimited remedies. Moreover, they are seeking this to achieve a regulatory result that has not been agreed to by either the voters or environmental regulatory officials of North Carolina.
B. The Concept of "Regulation Through Litigation."
Government-supported litigation involves the following elements:
Although the strategy had existed for some time, "regulation through litigation" became the topic of public debate in February 1999, when then-Secretary of Labor Robert Reich announced in a famous statement to USA Today that the Clinton Administration would be using such tactics to circumvent the normal legislative and regulatory processes for establishing and implementing public policy. The Clinton Administration strategy attracted two key criticisms:
The use of purely private litigation has not received the same notoriety as government-involved litigation, although private litigation strategies pose their own unique dangers. Regulation through private litigation is distinct from the government sponsored variety in the following respects:
Private litigation is similar to, and potentially more dangerous than, government-sponsored litigation, in that:
C. Implications for Other Industries.
Commentators perceive regulation through litigation are proceeding in waves, each driven by the avariciousness of state officials or trial attorneys. The first wave involved the famous tobacco litigation, which essentially established the paradigm. In the second wave, state and local government officials applied the tobacco litigation strategy to such industries as gun and lead paint manufacturers.3 The private party litigation addressed in this paper, and represented by the Smithfield lawsuit can be seen as the opening salvo in yet a third wave. This third wave could ultimately encompass virtually any industry that manufacturers products which have any suspected or proven environmental impact. Each wave builds on the previous one, and extends the abuses of the tort system that have come to be tolerated by the courts.
D. Possible Remedies to Limit Abuses of "Regulation Through Litigation."
Commentators perceive regulation through litigation are proceeding in waves, each driven by the avariciousness of state officials or trial attorneys. The first wave involved the famous tobacco litigation, which essentially established the paradigm. In the second wave, state and local government officials applied the tobacco litigation strategy to such industries as gun and lead paint manufacturers. The private party litigation addressed in this paper, and represented by the Smithfield lawsuit can be seen as the opening salvo in yet a third wave. This third wave could ultimately encompass virtually any industry that manufacturers products which have any suspected or proven environmental impact. Each wave builds on the previous one, and extends the abuses of the tort system that have come to be tolerated by the courts.
Because government-sponsored litigation depends upon government involvement, it can be policed by higher levels of government, or through public opinion. Thus, federal agency abuses can be corrected through action by the highest levels of the Administration. To assist the new Administration in such efforts, The Center for Regulatory Effectiveness has drafted a proposed executive order that would cure abuses at the federal level. This executive order could also be used as a model for action at the state level.
A key impediment to crafting a remedy is the "Federal judges and the trial lawyers, unlike elected officials, are accountable to no one, which makes the cause for tort reform at the state and federal levels even more urgent."4 Accordingly, the following broad strategies need to be developed:
E. Next Steps.
Interested parties should undertake discussion with the Bush Administration to initiate the Executive Branch strategy outlined above.
1 See, e.g., Arkansas v. Oklahoma, 503 U.S. 91, 100 (1992); International Paper Co. v. Ouellette, 479 U.S. 481 (1987); Technical Rubber Co. v. Buckeye Egg Farm, 2000 WL 782131 (S.D. Ohio 2000); Portage County Bd. of Comm'rs v. Akron, 12 F. Supp.2d 693 (N.D. Ohio 1998).
2 John Fund, The Dangers of Regulation Through Litigation, AMERICAN TORT REFORM FOUNDATION, 2000.
3 See, e.g., Joyce Cutler, San Francisco, Oakland Join Counties in Lawsuit Against Paint Manufacturers, BNA DAILY ENVIRONMENT REPORT, Jan. 31, 2001.
4 Karen Kerrigan, Unfair Litigation Has Business Fighting Back, WASH. POST, July 23, 1999.