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October 01, 2002

Federalism as a Trial Lawyer's Bill of Rights

by Michael S. Greve

Republicans and conservatives are generally supposed to favor federalism and states’ rights. Democrats and liberals are supposed to be against those things. Contrary to these convenient generalizations, however, liberals tend to be pro states’ rights on a central federalism issue—the federal preemption of state law and, in particular, state common law. Proposals for federal product liability reform, for example, routinely meet with trial lawyers’ objections that such measures would abrogate traditional "states’ rights." The GOP and conservative jurists and scholars, for their part, are deeply divided between states’ rights advocates, who view federal preemption with great skepticism; and (for lack of a better term) business conservatives, who view preemption as a vital—and underutilized—defense against regulatory "balkanization" and against trial lawyers, state attorneys general, and state legislatures.

The seemingly arcane preemption question is emerging as the central federalism issue, and it involves enormous political stakes. Preemption essentially operates as a limit or ceiling on state regulation. Broad preemption doctrines mean less room for state experimentation in all its forms—legislation, administrative rules, and "regulation" in the form of common law rules such as product liability rules. Consequently, preemption rules profoundly affect the trial bar’s fortune and, by extension, its political dominance over the Democratic Party. More broadly, partisan deadlock in Washington, D.C., means that massive regulatory and redistributive programs on the liberal agenda—for example, on health care—have no realistic chance of success at the national level. Increasingly, therefore, liberal constituencies have advanced such programs in the states, often through common law-style litigation. The organized litigation campaign by state attorneys general and plaintiffs’ lawyers against tobacco companies, resulting in a 1998 "settlement" that imposed a $250 billion national consumption and a comprehensive regulatory regime, is a pristine example. More recently, state attorneys general and trial lawyers have launched comparable campaigns against brokerage houses and pharmaceutical firms. Both initiatives are supported by a great majority of state attorneys general; both aim to reform and restructure industry practices on a national scale. Such "states’ rights" experiments hold the prospect of advancing otherwise futile liberal causes by supposedly conservative means—provided the experiments can be protected against federal preemption.

The plaintiffs’ bar and its political champions clearly understand these dynamics. The GOP does not. The intraparty divide between states’ rights advocates and business lobbies has impeded an effective response to the liberal states’ rights juggernaut. Indeed, GOP legislators and the Bush administration have often championed a narrow view of federal preemption, to their own detriment and that of their business constituencies. Most likely, the party will continue to assist in federalism’s transformation into a preemption-free trial lawyers’ bill of rights.

Federalism from Reagan to Bush

GOP sentimentality about states’ rights dates back to the Reagan administration. Then-contemplated proposals for a federal products liability reform bill met with significant internal states’ rights opposition. The administration also issued a strongly worded executive order on federalism (Executive Order No. 12,612 (1987)) that (among other provisions) instructed federal agencies to exercise federal preemptive authority only when the federal statute provides either an explicit statement or else "firm and palpable evidence compelling the conclusion that the Congress intended" to preempt the states. Under that standard, hardly any federal statute would conclusively preempt state actions at variance with federal schemes.

Conflicts between states’ rights and business concerns, including conflicts over preemption, did occur during the Reagan administration. (Reagan Solicitor General Charles Fried has described his run-ins with what he calls the U.S. Department of Justice’s (DOJ) "federalism police" in Order and Law, his reflections on the Reagan years.) By and large, though, the conflicts proved manageable. In regulatory proceedings and before the U.S. Supreme Court, the Reagan administration often took a traditional, pro-preemption stance at variance with the executive order. Then, too, the order was part of a larger deregulatory agenda that provided common ground for states’ rights advocates and business-oriented conservatives.

The Reagan executive order, though, predates the dominance of trial lawyers over the Democratic Party and American politics. It predates the attempts by state attorneys general to substitute regulation-by-litigation for federal policies (including some deregulatory policies, such as antitrust, that were put in place by the Reagan administration). It predates the emergence of a symbiotic alliance between trial lawyers and state attorneys general. It predates the wholesale divorce of states’ rights from deregulation. Contrary to the Reagan administration’s perception, more states’ rights and less preemption now entail more "big government," not less. Even so, the conservative states’ rights camp has refused to rethink its commitment to the cause. The Reagan executive order has remained a benchmark.

In 1999, Congress considered a "Federalism Accountability Act" (S. 1214, 106th Cong. (1999)). The bill proposed an interpretive judicial standard that would have made it much harder for Congress and the executive to preempt state actions, including and especially state tort law. It was sponsored by Senator Fred Thompson and then-Congressman David MacIntosh, two Republican and generally pro-business legislators. They withdrew their proposal only at the last minute and after a bruising, bare-knuckles intervention by the Chamber of Commerce.

Under the current Bush administration, the DOJ has drafted a proposed executive order on federalism that would instruct executive and administrative agencies to infer federal preemption of state law only when the preemptive intent is stated explicitly in the statute or else buttressed by "clear and manifest" evidence. In crafting this standard, the DOJ’s lawyers insisted that the new order had to be more "pro states’ rights" than the Reagan baseline. The proposed order has been put on hold, again in response to vehement business opposition and, moreover, to timing considerations: the White House deemed it unwise to roll out a states’ rights manifesto alongside its legislative proposal to curb state tort actions over the consequences of terror attacks. That judgment, though, was purely tactical. The envisioned order remains on deck, to be unveiled at a more opportune time. What is missing is a broader recognition that obstacles to federal preemption are detrimental to the administration’s and its constituencies’ interests under any circumstances.

The Tenth Justice, and the Other Nine

To the distress of business interests, the recognition that federal preemption provides the last line of defense against state regulation (under common or statutory law) has also eluded the Office of the Solicitor General. This matters greatly because the preemption battle is coming to a head in the U.S. Supreme Court.

The Supreme Court’s division on preemption by and large mirrors the lineup in the political arena. The four liberal justices (Breyer, Ginsburg, Souter, and Stevens) who have vociferously opposed the Rehnquist Court’s federalism usually turn states’ rights apostles in preemption cases. (They want no constitutional limits on Congress’s regulatory authority and no judicial rule that would facilitate congressional preemption. Federalism, on their theory, works best when governments at all levels operate without constraint.) The five justices who form the Rehnquist Court’s federalist majority, in contrast, are torn between their states’ rights impulse and the intuition that a collection of fifty regulatory fiefdoms—the natural result of a narrow preemption doctrine—cannot really be the face of modern federalism.

Anti-preemption rulings will result when one conservative justice defects to the side of the four regulation maximizers, reasoning that state impositions on interstate commerce are the price we must pay for "federalism." That result is bound to occur quite regularly, as the Rehnquist Court’s states’ rights jurisprudence (for example, in sovereign immunity and "commandeering" cases) makes expansive, "nationalist" preemption doctrines appear increasingly untenable. This past Term, for example, Justice O’Connor defected to the liberal side in Rush Prudential HMO v. Moran, 122 S. Ct. 2151 (2002), producing a 5-4 majority holding that the federal Employee Retirement Income Security Act (ERISA), one of the most intensely preemption-litigated federal statutes, permits states to legislate and enforce the sort of "patients’ bill of rights" measures that have consistently failed to pass the U.S. Congress.

The Supreme Court’s docket for the Term just begun features a number of important preemption cases that may generate similar results. In another ERISA case, Kentucky Association of Health Plans v. Miller, 142 F.3d 435 (6th Cir. 1998), cert. granted sub nom. Kentucky v. Miller (122 S. Ct. 2657 (2002), the Court will consider whether the law preempts the state’s "all willing provider" statute that guarantees HMO-insured consumers access to doctors outside the organization’s list of approved practitioners. In PhRMA v. Concannon, 249 F.3d 66 (1st Cir. 2001), cert. granted, 122 S. Ct. 2657 (2002), the Court will determine whether states may leverage the federal Medicaid program to exact price concessions from pharmaceutical firms for non-Medicaid consumers. (The state statute at issue, "Maine Rx," effectively excludes manufacturers that fail to make price concessions from the list of Medicaid-approved prescription drugs.) At the same time, and reflecting a recognition of the burgeoning tort law crisis, the Supreme Court has already agreed to decide six tort cases, two of which present statutory preemption questions. The more important of these, Sprietsma v. Mercury Marine, 197 Ill. 2d 112 (757 N.E.2d 75 (2001)), cert. granted, 122 S. Ct. 917 (2002), concerns the question whether a manufacturer’s failure to install a propeller guard for outboard motors is a product design defect for which the manufacturer may be held liable under state tort law. The defendants argue that the Federal Boat Safety Act, which grants the U.S. Coast Guard exclusive authority to establish boat safety standards, preempts such lawsuits. The plaintiffs argue that preemption requires an actual Coast Guard rule; the agency’s decision not to require propeller guards should have no preclusive effect.

Given the close division on the Court, and in light of the deference the Court typically accords the solicitor general especially in preemption cases, the administration’s position in those cases is of some consequence. The Bush administration has taken a fairly consistent stand—a shade to the left of Justice Souter.

In Sprietsma, for example, the administration argues that the Coast Guard never intended to preempt design defect suits under state tort law. That averment effectively throws Sprietsma—a case of potentially enormous precedential value in numerous regulatory contexts—to the trial lawyers. In last Term’s Rush Prudential, for another example, the administration’s anti-preemption position was too expansive even for Justice Souter, who wrote for the anti-preemption Supreme Court majority in that case. In this year’s sequel, the Kentucky "all willing provider" case, the administration argues that the wisdom of such legislation "can certainly be debated" and urges "that the permissible scope and limits of state authority in this area be defined." Instead of assisting in that task, however, the brief proposes to unshackle state authority from ERISA preemption. And so on. With enemies like these, liberal interest groups hardly need friends.

States’ Rights Schizophrenia

States’ rights sentiments do not always prevail over the GOP’s tangible interests. House Republicans have just voted to slap federal limits on pain and suffering damages in medical malpractice suits under state law. Some federal agencies (such as the Food and Drug Administration) have taken an expansive view of their preemptive authority, and the solicitor general has in some cases taken that same view. Still, the states’ rights faction prevails enough to put the party at a distinct rhetorical and political disadvantage in resisting the liberal states’ rights agenda.

Political convenience and perceived necessity drive some of the administration’s anti-preemption positions. The solicitor general’s position in health care and ERISA cases, for instance, seems plainly calculated to protect his clients’ interests. An anti-preemption stance in those cases accelerates the galloping regulatory disintegration of the health care system. (Over half of all states have enacted "all willing provider" statutes, and states are eager to enact "Maine Rx"-style programs just as soon as the preemption cloud lifts.) On the other hand, an insistence on traditional preemption doctrines under ERISA and federal health care statutes would tend to increase political pressure on Congress and on the administration to "do something" about prescription drug prices and HMOs. That would force the administration to underwrite yet another expensive program or else explain to the voters why the answer is "no," at a political cost that is deemed intolerable. The path of least resistance is to let the interest groups run loose in the states. The solicitor general is just the man to perform that maneuver—because he can, and because nobody notices when he does.

The GOP’s true states’ rights problem, however, is not an excess of political calculation but a lack thereof. Its problem is intellectual entropy, coupled with an absurd highmindedness. To confront the liberal states’ rights agenda, conservatives and Republicans would either have to rethink federalism at a fairly theoretical level or else abandon their abstract commitment to states’ rights and adopt a more political, constituency-oriented perspective. Neither of these options seems likely.

A rethinking might start with the insight that "states’ rights" must end where the next state’s rights begin. That line has been crossed when states impose, under the guise of state tort law, product design standards for the entire country. (Let the Sprietsma plaintiffs win their state law case, and a single local jurisdiction will have established a propeller guard standard for all states.) The line has been crossed when a state attorney general (New York’s Eliot Spitzer) contrives to "restructure" the nation’s financial industries and to implement, by means of litigation, national solutions to national problems. The observation that this sort of state aggression is definitely not your father’s federalism might lead to an inference that federal preemption provides the only stopping point. A reorientation along these lines, however, is unlikely: the GOP has not seriously thought about any domestic policy issue in more than two decades.

The alternative course of action—an abandonment of cherished states’ rights commitments in recognition of political interests and realities—founders on the fact that Republicans do not think like Democrats. The Democratic Party sensibly thinks of federalism as having something to do with constituencies. It categorically opposes states’ rights when that position hurts liberal constituencies; for example, it inveighs against "judicial activism" when the Rehnquist Court’s decisions on sovereign immunity, section 1983, and the scope of congressional authority under the Fourteenth Amendment prevent liberal constituencies from enforcing and expanding federal entitlements in court. Democrats enthusiastically champion states’ rights against preemption, where that position serves Democratic constituencies—foremost, the trial bar. The Republican Party, in contrast, thinks of federalism as an abstract principle. Its states’ rights contingents wear as a badge of their integrity the party’s willingness to uphold the principle when that stance collides with urgent political interests. And so, as trial lawyers and state attorneys general reconstruct a pre-Reagan liberal politics in and through the states, the GOP bellyaches over "federalism" and dreams up ways to out-Reagan Reagan on preemption.

Conventional wisdom holds that states’ rights are good for conservatives and bad for liberals. Conventional wisdom is wrong. The Rehnquist Court’s states’ rights federalism has of course dealt a setback to some liberal constituencies. But those losses are amply compensated in the preemption arena, where states’ rights translate into long-term gains for trial lawyers and for middle-class constituencies in search of a free lunch. States’ rights federalism enjoys the support of one and a half political parties. From a trial lawyer’s perspective, it merits at least two cheers.

As published in Human Rights, Fall 2002, Vol. 29, No. 4, p.12-14.

Michael S. Greve

Michael S. Greve is the John G. Searle Scholar at the American Enterprise Institute and director of AEI’s Federalism Project.