Litigation Settlements Should Go to States and Consumers, Not Slush Funds

A dispute over what to do with settlement money from lawsuits brought by state attorneys general is dividing the National Association of Attorneys General (NAAG).  

For decades, the trial…

A dispute over what to do with settlement money from lawsuits brought by state attorneys general is dividing the National Association of Attorneys General (NAAG).  

For decades, the trial bar has successfully pitched lawsuits against businesses over public policy issues to various state attorneys general. Since these lawsuits are filed on a contingency-fee-basis, there is an incentive to win or force a litigation settlement since the trial lawyer and the state don’t get paid otherwise. When state AGs have often won or settled a multi-state consumer protection case in partnership with an outside trial law firm, a set amount has gone into a state “litigation support fund” maintained by NAAG. That means less money goes directly to the states and consumers and more is available to fund new lawsuits by the AGs.  

The practice started in the late 1980s when then-New York AG Robert Abrams put part of a price-fixing settlement with milk producers into a NAAG “milk fund” to pay for antitrust investigations nationwide. Since then, NAAG has amassed a $280 million war chest, including more  than $100 million  from the 1989 tobacco settlement and tens of millions of dollars from other litigation. 

It’s a questionable practice that has now divided NAAG’s membership and led critics to suggest the AGs are violating their constitutional duty to turn over any money they receive to their respective state treasuries. Kentucky AG Daniel Cameron, joined by AGs from seven other states, demanded in a May letter to NAAG leadership that the group clarify how NAAG holds, manages, and disburses the litigation settlement funds it controls. Of particular concern is NAAG’s practice of “loaning” money as described in the May letter for AGs to pursue litigation, often using private lawyers working on contingency and employing creative new theories of liability. 

“Of course, loans must be repaid, which incentivizes states to pursue litigation for a financial return, regardless of whether such litigation is justified,” AG Cameron wrote. At least four AGs have pulled their states out of NAAG over concerns about how it collects and spends litigation settlement money. 

NAAG isn’t the only group to create a slush fund for settlements–for years, the U.S. Department of Justice (DOJ) allowed its attorneys to steer funds from settlements with businesses to advocacy groups and organizations with no direct connection to the investigation and without any oversight from Congress. From 2015-2017, DOJ officials  gave almost $1 billion in settlement money to politically favorite groups without congressional approval or oversight. The “slush fund settlement rule” ended in 2017, but unfortunately, the DOJ is attempting to sidestep Congress’ oversight authority again and bring it back. The U.S. Chamber of Commerce Institute for Legal Reform recently submitted comments opposing such changes.  

To ensure NAAG doesn’t continue to divert money away from its direct return to states and consumers, concerned state AGs should determine if constitutional and legal requirements prohibit executive-branch officials from spending money without legislative approval. All multi-state litigation settlement money in which a state AG’s office shares should go through the normal appropriations process in each state without letting NAAG skim some off the top for its own purposes.  

To the full extent permitted by law, the approximately $280 million in consumer protection settlement funds that NAAG controls should be returned to the state AGs for distribution to consumers in their states and other lawful uses. It should not continue to be a massive revolving fund for new lawsuits against businesses that benefit NAAG and the trial bar.