Teaming Up to Aid Consumers
Sweepstakes marketers who dangle huge cash jackpots as a hook to sell magazines and other merchandise recently found themselves in the cross hairs of an investigation by dozens of government attorneys.
The probe is not the work of traditional watchdogs such as the Federal Trade Commission and U.S. Justice Department. Rather, it is spearheaded by state attorneys general who contend that the marketers are using deceptive practices, a charge the sweepstakes firms deny.
The investigation is yet another sign of the increasing role of attorneys general on the national stage, where their activism and sheer numbers have made them an emerging power in business regulation.
Once rarely venturing beyond the borders of their states, attorneys general lately are extending their reach to what historically was considered federal turf. By tapping the large pool of deputies from their staffs, the attorneys general are going after targets that they would rarely have attacked in the past. Even AGs from U.S. territories are joining the group actions.
The AGs really entered the limelight with their immense legal assault on Big Tobacco, which began in 1994 and ended with $246 billion in settlements in November. But it was hardly the first time they had joined to enforce state consumer protection and antitrust laws.
The strategy took hold during the Reagan administration, which disdained government regulation and sharply curtailed federal enforcement. The laissez-faire policy had the unintended effect of energizing state enforcers. Since then, multi-state campaigns have grown in number and scale.
The coalitions include anywhere from a handful to all 50 states, and sometimes team AGs with federal postal inspectors, U.S. attorneys and the FTC. Targets have ranged from fly-by-night operators of credit-repair and pyramid schemes to a who’s who of the corporate world, including leading manufacturers of autos, computers, drugs, toys and footwear.
Many of the targets would have the legal muscle to overwhelm a single state, but the AGs have relied on numbers to gain the upper hand. For the attorneys general, 43 of whom are popularly elected, the strategy can also pay political dividends by burnishing their image as consumer champions.
The collaborative approach “makes a lot of sense in an economic environment with . . . national and international corporations,” said California Atty. Gen. Bill Lockyer.
Most consumer groups applaud the trend, but business and allied groups view it with some alarm.
The AGs have become “a strange bunch of emancipated law firms whose views are definitely at odds with the prevailing [pro-business] views that one attributes to state government these days,” said Walter Olson, a senior fellow at the Manhattan Institute, a conservative think tank.
Toys R Us, Mattel Among Targets
Of the joint AG campaigns, the giant tobacco settlement and the current federal-state antitrust case against Microsoft Corp. have drawn the most attention. But, with less fanfare, AGs have forced many other firms to change their marketing practices and pay hefty settlements, including refunds to consumers and charitable donations.
Among the results:
* Attorneys general in 44 states, the District of Columbia and Puerto Rico recently won $56 million in antitrust settlements from retailer Toys R Us Inc. and toy makers Mattel Inc., Hasbro Inc. and Little Tikes Co. The firms did not admit liability in settling the suit, which accused them of conspiring to limit the number and types of toys made available to Toys R Us competitors. Payments will mostly take the form of toy donations to needy children.
* A series of settlements were reached in 1997-98 with retailers and consumer credit firms that had collected on debts that were discharged in bankruptcy. The settlements required the firms--including Sears, Roebuck & Co., General Electric Credit Corp. and Federated Department Stores--to pay refunds totaling hundreds of millions of dollars.
* Three settlements with America Online, triggered by a flood of complaints about difficulty logging on and AOL’s misleading marketing pitches, were reached. AOL agreed to provide $34 million in credits and refunds and $2.6 million to defray legal and investigative costs of 44 participating states, including California.
* A 1996 settlement was reached with General Motors Corp., Honda Motor Co., Isuzu and Mitsubishi over allegedly deceptive offers for “zero down” auto leases. The companies agreed to change the ads and pay $1 million to participating states.
* Settlements with Reebok and Keds were reached on price-fixing complaints. The firms agreed to pay $9.5 million and $7.2 million, respectively, with the proceeds going to women’s charities and public athletic sites.
* A series of settlements were reached from 1993 to 1998 with major pharmaceutical firms, including Upjohn Co., Merck & Co., SmithKline Beecham, Lederle Labs, Sandoz Pharmaceuticals, Ciba-Geigy and McNeil Consumer Products. The settlements involved a variety of disputed practices, including allegedly misleading claims about the effectiveness of medicines and improper payments to pharmacists to promote drugs.
Targets of the campaigns seem reluctant to publicly criticize the AGs. A Sears representative said it actually was helpful to deal with the AGs en masse. “It saved us a lot of time and got the consumers their money back faster” than if the company had negotiated with each state, spokeswoman Jan Drummond said.
The AGs’ rising profile comes at a time of new perils for consumers, due in part to the Internet and other communication advances that allow almost any huckster to reach a vast audience. Conversely, however, e-mail, faxes and conference calling have also made it easier for large numbers of states to work together.
Typically, such efforts start with one or two states that take a special interest in an issue and do most of the early legwork. The coalitions are created informally as the lead states share information and solicit allies.
States Get More Bang for the Buck
Collectively, the AGs command a formidable legal army, with staffs ranging from a low of 29 deputy attorneys general in tiny South Dakota to more than 550 staff lawyers in New York and 1,000 in California, according to data from the National Assn. of State Attorneys General.
Most deputy AGs are assigned to such bread-and-butter tasks as representing state agencies and handling major criminal prosecutions and appeals. About 130 deputies are assigned to antitrust matters, but 21 states either have one antitrust lawyer or none. Similarly, 440 deputies are assigned to consumer protection--or, on average, almost nine per state--but 10 states have but one or two consumer lawyers.
As a consequence, the joint campaigns have allowed many states to participate in cases they couldn’t dream of undertaking on their own. An example is Wyoming, where Senior Assistant Atty. Gen. Mark Moran is a consumer affairs division of one.
The operation is so lean that, Moran jokes, “I’ve even done house calls.” Still, he takes part in conference calls with the other states and signs on to many multi-state campaigns.
“I call it the ‘halo effect,’ ” Moran said. “We rely a lot upon our friends across the country . . . [and] Wyoming citizens benefit directly.”
In some ways, the diffusion of authority in 50 states is a strategic advantage, making AG task forces highly resistant to pressure from business and political interests. Unanimity or even majority approval is not required, so it only takes a core group of committed states to act. Thus, it did not matter that Washington state, home of Microsoft, was not interested in suing the software giant, since 20 other states were. And although North Carolina was not about to sue the tobacco companies, nearly every non-tobacco state was willing to do so.
Partisan politics rarely, if ever, intrudes directly, and the coalitions cross party lines. On the other hand, when campaigns attract nearly every state, achieving consensus can be cumbersome and time-consuming.
A case in point is the investigation of sweepstakes firms, involving about 60 deputies from more than 40 states. A few states, eager for results, have gone ahead with lawsuits on their own.
In April, for example, Washington Atty. Gen. Christine Gregoire filed suit against three of the biggest sweepstakes firms, Publishers Clearing House, American Family Publishers and the Time-Warner subsidiary Guaranteed & Bonded.
“I became progressively more concerned about how much [of] what I considered to be illegal activity was happening to my citizens,” Gregoire explained. “I didn’t feel I could wait any longer.”
Bill Low, general counsel for Publishers Clearing House, predicted that when the AG task force completes its industrywide probe, there will not be “anything that they find to be inappropriate in [the company’s] business practices.”
Attorneys general also lobby Congress on consumer legislation. Last year, for example, nearly 40 AGs joined consumer groups in helping to block industry-supported legislation on the multibillion-dollar problem of wrecked cars being cosmetically repaired and sold to unwitting consumers.
Consumer and industry groups alike wanted a uniform national standard for specifying on vehicle titles that a car had undergone major repairs. But critics said a bill sponsored by Senate Majority Leader Trent Lott (R-Miss.) and backed by insurance companies and car dealers would have imposed standards weaker than those in some states.
Rosemary Shahan, president of Sacramento-based Consumers for Auto Reliability and Safety, said the AGs were indispensable in blocking the bill. “Consumer groups couldn’t do it alone.”
Other observers take a more jaundiced view. Given the flood of fraudulent schemes and deceptive marketing tactics, what the AGs have done is “not even a drop in the bucket,” said David Vladeck, director of the Public Citizen Litigation Group in Washington, D.C.
Besides, he groused, “I have a real problem saying we ought to applaud people for doing their job.”
Others suggest the AGs are engaged in political grandstanding, noting that a record of fighting big business can help in the quest for higher office.
AGs “can be described as governors-in-waiting,” remarked Lino Graglia, a University of Texas law professor. “It is in their personal interest to receive publicity, and publicity in terms of being a battler for consumer protection” is all to the good.
Pro-Consumer Image No Help to Humphrey
Even so, a pro-consumer image hardly guarantees electoral success. Consider the fate of Hubert H. Humphrey III, former attorney general of Minnesota who emerged as a national leader in the anti-tobacco crusade. Humphrey suffered an ignominious defeat in November when former pro wrestler Jesse “The Body” Ventura triumphed in the governor’s race. Former Massachusetts Atty. Gen. Scott Harshbarger, another leader of the anti-tobacco fight, lost his gubernatorial bid last fall.
Traditionally, attorneys general defined their duties more parochially and left the feds to worry about problems affecting all the states. But during the Reagan administration, the feds became “toothless and clueless in antitrust and consumer protection . . . as a matter of ideology,” recalled Connecticut Atty. Gen. Richard Blumenthal.
“It fell on the states to enforce those laws,” Wisconsin Atty. Gen. James Doyle said.
At times the states have been challenged for invading what had been considered the federal domain. They were vindicated in a watershed case that arose in California when the merger of the Alpha Beta and Lucky supermarket chains was approved by the FTC but opposed by former state Atty. Gen. John Van de Kamp.
The question of whether a state could challenge a merger that federal authorities had blessed made its way to the Supreme Court, which in 1990 ruled in Van de Kamp’s favor.
During the Bush presidency, the FTC began to reassert its regulatory role and push for coordination with the states. Today the agency and the AGs have “a very positive and close working relationship,” said Eileen Harrington, associate director for marketing practices at the FTC.
Some AGs dissent from the prevailing activist bent. Alabama, for example, was among the few non-tobacco states refusing to sue cigarette makers. Atty. Gen. Bill Pryor said he was particularly troubled by states’ heavy reliance on private lawyers who will collectively get billions of dollars in fees. (Tobacco was an exception; other AG cases have been handled mainly by staff lawyers.) Even so, Pryor said his state will continue to participate in cases he believes have “a clear relationship to consumer welfare.”
Given the pace of economic and technological change, cooperative efforts by the AGs seem likely to increase.
James Tierney, the former attorney general of Maine, recalled that when he took office in 1981, consumers in his small hometown of Lisbon Falls were largely served by locally owned businesses. Today, he said, the town’s most important banks, food stores and other businesses are controlled by national and multinational corporations with headquarters hundreds or thousands of miles away.
Said Tierney: “You can see where no attorney general can really do his or her job sitting as an island . . . [and] pretending that their state’s boundaries are . . . defining the lives of their citizens.”
