Decisions Affecting the Powers and Duties of Attorneys General

Emily Myers, NAAG Antitrust Counsel and Powers and Duties Counsel

Emily Myers, Antitrust and Special Projects Counsel

California—Standing of Proponents of Initiative to Appeal Adverse Decision

As described in a previous article (NAAGazette Vol. 5 No. 9), California voters passed Proposition 8, a state initiative to ban same sex marriage. Several parties filed suit in federal court, seeking to enjoin state and local officials (including the attorney general) from enforcing the initiative on civil rights grounds. The attorney general and governor declined to defend the initiative, leaving its defense in the trial court to the initiative proponents. However, all state officials continued to enforce the law. The district court held that the initiative violated the Due Process and Equal Protection clauses of the 14th Amendment and enjoined its enforcement by state officials, including the attorney general. The proponents of the initiative filed an appeal, although none of the state officers did so. The Ninth Circuit, after certifying the question to the California Supreme Court, held that the proponents did have standing to appeal, and affirmed the district court’s holding on different grounds. The U.S. Supreme Court granted certiorari, and asked the parties to brief the question of proponent standing.

In an opinion by Chief Justice John Roberts, the Supreme Court dismissed the case on the grounds that the initiative proponents did not have standing to pursue the appeals of the district court’s decision. Describing parties with standing as having suffered “a concrete and particularized injury that is fairly traceable to the challenged conduct, and is likely to be redressed by a favorable judicial decision,” the court held that the proponents themselves had not claimed to suffer any individual harm, only the harm to “every citizen’s interest in proper application of the Constitution and laws.” Although proponents of an initiative have rights under California law with respect to getting the initiative on the ballot and ensuring that it is voted on, once it becomes law, they no longer have a role.

Proponents argued that they may assert, on the state’s behalf, the interest of the state of California in protecting its state laws. The court agreed that the state has a “cognizable interest in the continued enforceability of its laws” and that in order to vindicate that interest, the state “must be able to designate agents to represent it in federal court.” Although the agent is typically the state’s attorney general, it may be another state official. The court cited cases revoking this authority when state official are no longer acting in their official capacity. The proponents also argued that the California Supreme Court’s decision that they could “participate as parties in a court action and assert legal arguments in defense of the state’s interest in the validity of the initiative measures” made them agents of the state for standing purposes. The U.S. Supreme Court disagreed, noting,

“An essential element of agency is the principal’s right to control the agent’s actions.” [citations omitted] Yet petitioners answer to no one; they decide for themselves, with no review, what arguments to make and how to make them. Unlike California’s attorney general, they are not elected at regular intervals—or elected at all. . . . No provision provides for their removal.

Similarly, petitioners have not taken an oath of office, and the California Supreme Court stated that the “question of who should bear responsibility for any attorneys’ fee award” is entirely separate from the question of pursuing the appeal. The U.S. Supreme Court noted that a principal has a duty to indemnify the agent, further indicating that the proponents were not agents for the state. The Court concluded, “we have never before upheld the standing of a private party to defend the constitutionality of a state statute when state officials have chosen no to. We decline to do so for the first time here.” Hollingsworth v. Perry, 570 U. S. ____ (2013).

Connecticut—Attorney General’s State Unfair Trade Practices Case Remanded to State Court

The Connecticut attorney general filed suit against a credit reporting agency in state court, alleging that the credit rating agency violated state law by making false statements as to its independence and objectivity in connection with the rating of mortgage-backed securities, in violation of the Connecticut Unfair Trade Practices Act. Credit rating agencies are regulated by the Securities and Exchange Commission, and state agencies are prohibited from “seeking to regulate the substance of credit ratings of the procedures or methodologies by which [they] determine credit ratings.” [citation omitted] The governing statute does provide that “[n]othing in this subsection prohibits the securities commission (or any agency or office performing like functions) of any State from investigating and bringing an enforcement action with respect to fraud or deceit against any [credit rating agency.] 15 U.S.C. §78o-7(o)(2). The Connecticut trial court found that defendant had violated state law and after a number of other states filed similar claims in their own state courts, the defendant sought removal on the grounds that the plaintiff’s state law claims necessarily raised substantial and disputed issues of federal law. The attorney general sought remand on the grounds that removal was untimely.

Removal must be sought within 30 days of the filing of the complaint, or within 30 days of “an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” Defendant argued that the filing of 13 separate actions by different jurisdictions was an appropriate trigger for the removal action. The court disagreed, and held that the “other paper” referred to in the statute does not include papers filed in another action, but rather, only applies to papers filed in or generated in connection with, the state court action itself. The court also held that even if the filing of similar actions in other states could be a trigger, two states, Illinois and Mississippi, had filed suits approximately a year earlier. Because the defendants removed this action so long after the deadline, the court awarded costs and fees to the state in connection with the removal action. Connecticut v. The McGraw-Hill Cos., Inc. No. 3:13-cv-311 (D.Conn. Apr. 4, 2013).

Indiana--Legislators May Not Intervene to Defend Challenged State Statute

Plaintiffs filed suit in federal court, challenging the constitutionality of an Indiana statute addressing enforcement of immigration laws. The attorney general, representing the state, filed a motion for summary judgment, plaintiffs responded, and the case was fully briefed. The U.S. Supreme Court then decided Arizona v. United States, 132 S.Ct. 2492 (2012). Because that decision struck down a statutory provision identical to one in the Indiana litigation, the attorney general acknowledged that the Indiana statutory provision was unconstitutional, and stated that the provision “will not be defended and a ruling by this Court to that effect will be accepted.” The attorney general continued to defend other provisions of the state law. Three state senators sought to intervene in the case to defend the statutory provision that the attorney general declined to defend. The attorney general and the plaintiffs opposed their motion to intervene.

The court first addressed the standing of the legislators, finding that their interest was not sufficient to convey Article III standing. Their votes for the legislation had not been nullified by an act of the executive, since the legislation had actually been enacted. Rather, they simply disagreed with a litigation strategy chosen by the attorney general. These senators were not authorized to act for the legislature in connection with this case, and the attorney general is continuing to defend some portions of the statute. The senators argued that a provision of state law allows them to have counsel of their own choosing to represent their interests. The court stated,

Indiana law provides that, although state officials may hire outside counsel of their choosing to protect their personal interests, “when the suit involves State officers or employees in their official capacities, the outside attorney may only act as an amicus curiae unless the Attorney General consents. The Attorney General is charged by law with defending State agencies, officers and employees, and must, of necessity, direct the defense of the lawsuit in order to fulfill his duty to protect the State’s interests.

With respect to permissive intervention, the court cited longstanding Indiana case law under which the attorney general “has exclusive power and right in most instances to represent the State, its agencies and officers, and the agencies and officers may not hire outside counsel unless the Attorney General has consented in writing.” The court declined to allow the intervention, because “Allowing the three individual legislators to intervene here in their official capacities as State Senators not only would conflict with this well-settled state law, but would provide the legislators a trump card with respect to the Attorney General’s statutorily derived discretion in this context.” Buquer v. City of Indianapolis, 2013 WL 1332137 (S.D. Ind. Mar. 28, 2013).

Kentucky—Attorney General May Hire Outside Counsel on Contingency Fee Basis

In one of several recent cases addressing the authority of the attorney general to hire outside counsel to represent the state on a contingency fee basis, a Kentucky federal district court held that the attorney general may hire outside counsel on that basis. The attorney general filed suit against Merck, a pharmaceutical manufacturer, in state court, alleging violations of the Kentucky Consumer Protection Act in connection with the marketing of Vioxx. The attorney general sought bids and eventually hired outside counsel. The outside counsel agreed to be compensated by “contingency fees to be withheld from any settlement award resulting from the litigation.” The contract provided that the attorney general retained the right to direct the litigation in all respects, including all potential settlements. Merck challenged the attorney general’s hiring of outside counsel on the grounds that its due process rights were being infringed because the private lawyers had a direct and substantial financial stake in the outcome of “a punitive enforcement action that must be prosecuted in the public interest or not at all.”

The court distinguished between situations where the private attorney “supplants” the attorney general rather than having the private attorney serve in a subordinate role. The court explained that it must “ensure that outside counsel’s “profit-making motivation is always subordinated to the Attorney General’s common law duty to represent the public interest.” The court first examined the contracts with private counsel and concluded that although they did not lay out specific areas of authority for the attorney general, such specification would in fact “cabin [the AG’s] authority, not expand or preserve it.” The court next examined the actual conduct of the attorney general and outside counsel in detail, including the supervision by an attorney in the AG’s office and the knowledge of the case by that attorney. The court concluded, “As long as the AG’s office is reviewing the contingency-fee counsel’s work before adopting or approving it — and Merck has cited no evidence in the record to convince the Court that it is not — the AG has retained and exercised his decisional authority. The Court will not second-guess the AG’s decision to grant a certain amount of room for the outside attorneys to . . . exercise their professional skills in putting a lot of [the litigation] together.” Merck Sharp & Dohme Corp. v. Conway, Attorney General, No. 3:11-51-DCR (D.D. Ky. May 24, 2013).

New York—Attorney General Has Authority to Prosecute Medicare Fraud

Defendants, who were convicted of crimes related to Medicaid and Medicare fraud, challenged their convictions on the grounds that the New York attorney general does not have authority to prosecute defendants for crimes involving Medicare. The defendants first argued that under New York case law, the New York attorney general “has no . . . general authority [to conduct prosecutions] and is without any prosecutorial power except when specifically authorized by statute.” In this case, the state health commissioner requested, pursuant to state law, that the attorney general investigate and prosecute Medicaid fraud. As part of that request, the commissioner used the language of New York Executive Law §63(3), which permits prosecution of any person or persons believed to have committed the same and any crime or offense “arising out of such investigation or prosecution.” The trial court decided, and the appellate court affirmed, that the prosecution of Medicare fraud in connection with Medicaid fraud claims was permitted under the statute.

The defendants also argued that Executive Law §63(3) is preempted by the federal statute that authorizes the Medicaid Fraud Control Unit (located in the New York Attorney General’s Office) to investigate and prosecute Medicaid fraud. The court determined that the law is not expressly preempted by Executive Law 63(3), nor is it impossible to comply with both state and federal law. Finally, the court held that state law was no impediment to the federal statute, which simply “describes the function of a state entity that investigates and prosecuted Medicaid fraud” from the state statue, which “considers the prosecutorial authority of the Attorney General,… which appears to support the objectives of the subject federal statute.” People of the State of New York v. Miran, 964 N.Y.S. 2d 309 (N.Y. App. Div. 2013).

Ohio—Attorney General May Pursue Claim in Bankruptcy Court as Parens Patriae

Defendant was in the business of selling residential loan modification services, and 92 Ohio consumers filed complaints with the attorney general about those services. The attorney general filed a complaint against the defendant in September 2010. Defendants consented to a permanent injunction, but the court has not yet issued a decision or finding that the state or consumers are entitled to monetary damages. The defendant filed for bankruptcy under Chapter 7 of the Bankruptcy Code in November 2011. The attorney general challenged the dischargeability of the debt to the 92 consumers injured by the defendant, and the defendant argued that the attorney general did not have an enforceable obligation because there was no final judgment in the court of common pleas case. The attorney general argued that he had standing to challenge dischargeability based on the doctrine of parens patriae.

Parens patriae standing is applicable to dischargeability petitions, according to the court, and to establish the standing, the state must have a quasi-sovereign interest, there must be an injury to a substantial segment of its population, and individuals cannot obtain complete relief through their own suit. The court found that the state has a quasi-sovereign interest in protecting the economic well-being of its citizens from consumer fraud, because “the state has a great interest in protecting its citizens from losing property due to fraudulent practices.” The court held that 92 affected consumers was a sufficient number to constitute a substantial segment of the population. The court held that the Ohio statutory scheme allows consumers to pursue certain claims, but that the relief sought by the attorney general is broader and includes injunctive relief. Finally, the court held that although there had been no final judgment in the attorney general’s case against the defendants, “The fact that Plaintiff does not have a final judgment from the state court has no bearing on whether Plaintiff can now pursue a nondischargeability claim against Defendant. Plaintiff's right to seek damages on behalf of the Consumers and pursue restraining orders or injunctions are enforceable obligations and fall within the broad definition of the term “claim.” In re Suwinski, 2013 Bankr. LEXIS 1247 (S.D. Ohio Bankr. Feb. 27, 2013)

West Virginia—Attorney General Does Have Common Law Powers, May Hire Outside Counsel on Contingent Fee Basis

The West Virginia attorney general retained outside counsel to represent the state in suits filed against several credit card companies alleging unfair and deceptive practices under West Virginia law. The attorney general also retained outside counsel in litigation against GlaxoSmithKline, alleging consumer protection violations in connection with the marketing of the drug Avandia. The defendants in each case sought to disqualify the outside counsel on the grounds that their appointment violated the West Virginia Governmental Ethics Act and the Rules of Professional Conduct and that the attorney general did not have authority to hire outside counsel. In each case, the motion was denied by the trial court. The cases were appealed to the West Virginia Supreme Court.

The state Supreme Court first addressed the issue of whether the outside counsel appointed as special assistant attorneys general were “employees” subject to the Ethics Act. An employee is defined as “any person in the service of another under any contract of hire, whether express or implied, oral or written, where the employer or an agent of the employer or a public official has the right or power to control and direct such person in the material details of how work is to be performed and who is not responsible for the making of policy nor for recommending official action.” The court held that “contract for hire” meant that the person denominated by the employer has an obligation to pay the person employed. The court therefore concluded that the special assistant attorneys general, who took all of the risk in pursuing a claim on behalf of the state, and to whom state taxpayers would not be obligated in any way, were not employees for the purposes of the Ethics Act.

The petitioners next argued that the contingency fee contract with private counsel violated Rule 1.7(b) of the West Virginia Rules of Professional Conduct. Rule 1.7(b) provides, “A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests . . .” The petitioners argued that the outside lawyers were pursuing a quasi-criminal proceeding, and courts have prohibited criminal prosecuting attorneys from having a financial interest in the outcome of criminal cases. The court found that even if these enforcement actions could be deemed to be quasi-criminal, the attorney general had chosen and approved the penalties to be sought if liability was established. There is nothing that indicates that the amount of fees is dependent on the nature of the relief obtained in these cases, and in fact, attorneys’ fees are purely discretionary with the trial court. In summary, “the Petitioners have failed to present any evidence that the financial interests of the special assistant attorneys general are in conflict with that of their client.”

Finally, petitioners challenged the attorney general’s authority to appoint outside counsel at all. Petitioners argued that the West Virginia Constitution gives the legislature exclusive authority to set out the duties of the attorney general, and it has not granted the attorney general authority to hire outside counsel. Petitioners also argued that the attorney general does not have common law authority to make such appointments. The court held that the Constitution was silent on the attorney general’s authority to hire outside counsel. Turning to the attorney general’s common law powers, the court noted that those powers had been recognized by West Virginia courts until the 1982 decision in Manchin v. Browning, which the court characterized as having “ventured off into sweeping dicta” and made “an overly broad conclusion” based on the status of the Virginia attorney general before the Civil War. Characterizing this reasoning as “convoluted,” the court held that “the Office of Attorney General retains inherent common law powers, when not expressly restricted or limited by statute” and explicitly overruled Manchin v. Browning. Although West Virginia statutes do not authorize the hiring of outside counsel on a contingency fee basis by the attorney general, the statute does not forbid it, and the court held “the Attorney General has common law authority to provide for compensation to be paid to special assistant attorneys general through a court-approved award of attorneys’ fees taken directly from the losing opponent in the litigation.” State ex rel. Discover Financial Services v. Nibert, No. 13-0086 (W.Va. June 4, 2013).

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