Enviro-Extortion: Private Attorneys General and the Use and/or Threat of Environmental Litigation to Extract Involuntary Wealth Transfers*

By

Bruce L. Benson DeVoe Moore Distinguished Research Professor

Department of Economics Florida State University Tallahassee, FL 32306

(850) 644-7094 bbenson@garnet.acns.fsu.edu

http://garnet.acns.fsu.edu/~bbenson

and

Julian Simon Fellow Property and Environment Research Center

2048 Analysis Drive, Suite A Bozeman, MT 59718

(406) 587-9591 http://www.perc.org

* I want to thank the Property and Environment Research Center (PERC) for awarding me a 2004 Julian Simon Fellowship in support of this research project, and everyone at PERC who made my time in residence there so enjoyable and productive. I have stepped out of my areas of relative expertise by writing about environmental law, regulation, and litigation, but I was fortunate to be in a position to call upon several people with considerable knowledge in this area. In this regard, I want to thank Jonathan Alder, Terry Anderson, Michael Greve, Roger Meiners, Bruce Yandle, Fred Smith, Andy Morriss, P. J. Hill, Dan Benjamin, and Tom Bray for being so willing to answer my questions, critique my thoughts, and/or advise me about relevant literature. I hope that the results do justice to their time and effort in trying to educate me.

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Extort: "to obtain from a person by force or undue or illegal power or ingenuity." Extortion: "the act or practice of extorting esp. money or other property; specif.: the offense committed by an official engaging in such practice."1

I. Introduction

The definitions listed above indicate that one person's ability to extort money or property

from another can arise from sources of power that may be illegal, but this is not necessarily the

case. Indeed, the coercive power of government can be the source of "legal" but "undue" (e.g.,

immoral, inequitable, unfair, inefficient) power to extort (McChesney 1987, 1997; Beck, et al.

1992). Many governments around the world (e.g., in parts of Africa, Asia, and Latin America)

are or recently have been little more than protection rackets, after all.2 Legalized extortion also

occurs in the "advanced" countries, however. For instance, public officials, politically influential

individuals, or powerful interest groups may use "skill or cleverness in devising" potential

statutes or administrative rules that will allow them to extort by threatening to establish those

rules (McChesney 1987, 1997). Similarly, extortion may involve a threat to enforce or prosecute

existing rules. Lawyers also may be able to skillfully and cleverly combine arguments to produce

precedent that then allows them to extort by threatening other targets with litigation. In order to

illustrate the potential for and actual practice of legalized extortion, the following presentation

details two examples. The first exists because of power granted by federal statutes, and the

second has developed through changes in tort law and the resulting power granted to lawyers.

Both examples focus on legal extortion in the environmental area, but legalized extortion is

certainly not unique to environmental law (McChesney 1987, 1997; Beck, et al. 1992)

1 These definitions and the definition of ingenuity provide parenthetically below are quoted from Webster's New Collegiate Dictionary (Springfield, MA: G. & C. Merriam Company, 1974): 408 and 593. 2 The difference between legalized extortion and illegal "corruption" is largely definitional. Theoretical analysis of involuntary wealth transfers through legalized extortion and illegal corruption does not really differ by vary much (Benson and McChesney 2004). The incentives are virtually identical except that there is an additional potential cost associated with corruption: the expected cost of punishment.

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Section II discusses the legislative underpinnings of “private-attorneys-general” powers

granted by federal environmental statutes, and the extensive use of this power to extract money or

property from alleged offenders through settlement agreements. 3 Section III turns to the question

of whether this power to extract money or property is "undue" -- that is, does it constitutes

extortion? While this is a normative question that cannot have a unique answer without

specifying a particular norm, it can be addressed indirectly by showing that the various normative

benefits such powers are alleged to produce do not actually arise. For instance, benefits

supposedly result because "more-enforcement-is-better," either because the environmental

statutes, and therefore their enforcement, are assumed to always be in the public interest, or

because of presumed bureaucratic under-enforcement incentives, perhaps due to industrial

capture. Another claimed justification is increased representation in prosecution, and therefore,

greater "democratization." "Privatization" of prosecution is also expected to enhance enforcement

efficiency. Such claims are rejected in Section III. Thus, the private attorney general powers

granted through environmental statutes are not justified by the arguments that have been

proposed, implying that it is undue. The next section turns away from statute law in order to

explain that developments in tort law also allow lawyers to act as private attorneys general, and

that this also promotes extortion. Environmental extortion through so-called "toxic tort" litigation

is discussed. Section V concludes by noting that the threat and/or use of litigation is not the only

“legal” means by which environmental extortion occurs.

II. Private Attorneys General Under Federal Environmental Statutes

3 The term “private attorney general” was apparently first used in Associated Industries v Ickes 134 F.2d 694, 704 (2d. Cir. 1943) (Garth, et al. 1988: 357), so the practice goes well beyond the environmental citizen suit arena discussed here (e.g., see Section IV where the term has also been applied to plaintiff attorneys in mass torts). The concept tends to apply where the courts support a broad concept of standing (see footnote 6). Thus, organized group advocacy typically involves private attorneys general, whether the issue in litigation has to do with the environment, minority rights, civil liberties, consumer interests, or other potential areas of “social advocacy” (Garth, et al. 1988: 358). Another common characteristic of such organized advocacy is that the courts generally award attorney fees to the winning plaintiff attorneys (Garth, et al. 1988: 358), and as explained below, this is the case with environmental citizen suits.

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Almost every major federal environmental statute includes a “citizen-suit” provision

allowing “any person” (and therefore any organization of persons) to sue alleged violators for

noncompliance with either the statutory provisions or with the regulations and standards issued

by the agency charged with enforcing the statute.4 Unlike historical privately-initiated common-

law suits dealing with environmental disputes (e.g., alleging trespass, nuisance, toxic products),5

however, these “citizens” are not seeking compensation because they are direct victims with

measurable harms due to environmentally-related externalities (Greve 1990: 340). In fact, they

need not sustain any actual harm, as they are “private attorneys general” pursuing enforcement of

statutory or regulatory requirements (Adler 2001a).6

4 Federal environmental statutes with such provisions include the Toxic Substances Control Act (TSCA), the Endangered Species Act (ESA), the Surface Mining Control Act (SMCA), the Marine Protection, Research, and Sanctuaries Act (MPRSA), the Deep Seabed Hard Mineral Resources Act (DSHMRA), the Deepwater Port Act (DPA), the Energy Policy and Conservation Act (EPCA), the Ocean Thermal Conservation Act (OTCA), the Safe Drinking Water Act (SDWA), the Noise Control Ac (NCA), the Resource Conservation and Recovery Act (RCRA), the Superfund Amendment and Reauthorization Act (SARA), the Clean Water Act (CWA), the Outer Continental Shelf Lands Act (OCSA), the Air Pollution and Control (Clean Air) Act (CAA), the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), and the Emergency Planning and Community Right to Know Act (EPCRA). Federal statutes that do not have such provisions are the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), the Marine Mammal Protection Act (MMPA), and the National Environmental Policy Act (NEPA), although citizen suit cases apparently are brought under NEPA (May 2003: 2). Information regarding citizen suit actions under NEPA is not readily available, however.

Many states have also passed citizen-suit authorization for prosecution of some or all of their environmental legislation, although several states, particularly in the West, have seen significant resistance to the creation of citizen suits (DiMento 1982). The following presentation will focus on citizen suits under the federal environmental statutes, however, since much more information about these suits is available. Nonetheless, the expectation is that state statutes have similar implications. The first state to pass a "general" citizen-suit statute authorizing environmental citizen suits was Michigan in 1970 (DiMento 1982: 171). Many states have followed suit, however, adopting something similar to the Model Natural Resources and Environmental Protection Act (written by Joseph L. Sax of the University of Michigan Law School) which provided the basis for the Michigan legislation. Other states have included citizen suit provisions in specific environmental statutes, as suggested by the federal provisions. Still other stated developed citizen suits through judicial interpretation of the National Environmental Policy Act. "The standing provisions in these laws are generally quite liberal" (DiMento 1982: 176). 5 Note the word “historical” modifying common law. This is intended to suggest that the common law treatment of at least some environmental issues has changed. Some of these changes, discussed in section IV below, have lead to increases in legal extortion through common law litigation. 6 Also see Adler (2001a), Longfellow (2000), and Percival and Goger (2001) for discussions of the changing standing and injury-in-fact requirements for citizen suits under the environmental statutes. Briefly, the United States Supreme Court explained, in Sierra Club v. Morton, 405 U.S. 727, 731 (1972), that plaintiffs in such suits had to have “a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of the controversy.” Greve (1990: 343) correctly noted that the “judiciary’s insistence [on these standing requirements had been] far from categorical.” A broad view of standing and injury in fact developed is illustrated by U.S. v. Students Challenging Regulatory Procedures, 412 U.S. 669 (1973)

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Table 1: Federal Court Decisions in Environmental Citizen Suits Year No. of Decisions Year No. of Decisions 1970 0 1987 49 1971 0 1988 66 1972 0 1989 74 1973 7 1990 62 1974 13 1991 53 1975 18 1992 66 1976 8 1993 93 1977 12 1994 70 1978 10 1995 99 1979 11 1996 87 1980 30 1997 71 1981 23 1998 101 1982 24 1999 64 1983 24 2000 70 1984 34 2001 101 1985 48 2002 75 1986 48 Total 1,511 Source: May (2003: 8)

Table 1 provides one indicator of the magnitude of citizen suit activity under federal

environmental statutes: the number of decisions federal courts have issued in environmental

citizen suits from 1970 through 2002. These data are far from complete measures of citizen-suit

actions, as explained below. They are worth considering, however, before turning to a discussion

of the cases that do not result in court decisions (i.e., where money or property is extracted

where five law students challenged new rates set by the Interstate Commerce Commission (ICC), alleging that the ICC failed to file an environmental impact statement under NEPA. The students claimed standing based on a long chain of causation: (1) higher rates would raise the cost of recycling, which would (2) reduce recycling, and therefore (3) increase littering in parks used by the students, causing (4) aesthetic damage. The court found that this argument demonstrated sufficient injury-in-fact to give the students standing. The court began cutting back on their broad view of standing after this, however. A series of cases during the 1990s appeared to raise the standard for evidence of injury in fact, and place relatively clear limits on standing for such citizen suits, however. Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) is of particular importance. These case suggest that standing requires: (1) an actual, as opposed to speculative, and particularized injury in fact that sets the citizens apart from the rest of the population must have been suffered by the plaintiff, (2) the conduct complained of must have a “causal connection” to the injury in fact, and (3) there must be some likelihood that a favorable decision will redress the injury. The court lowered the standing requirement quite dramatically in Friends of the Earth, Inc. v. Laidlaw Environmental Services, Inc., 528 U.S. 167 (2000), however, when Adler (2001: 56) suggests that injury in fact became “injury in fiction” (the claims regarding injury and standing are discussed in the text below). While Adler (2001a) is critical of this change in standing, Percival and Goger (2001) and Longfellow (2000) interpret these changes in the same way [e.g., “As a result of Laidlaw, citizens who live near sources of pollution or who recreate in areas affected by violations of environmental law may sue to enforce the laws without having to demonstrate observable impacts of the illegal act” (Percival and Goger (2001: 121)], but they see these changes in a very different light, concluding that they are very desirable.

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through the threat of prosecution rather than actual prosecution). One thing they reveal is that the

number of citizen suit cases taken to trial and pursued to a decision has been trending upward for

two decades. The implications of these numbers are more revealing when they are put into a

broader context, however. For instance, the federal courts decided an average of about 110

environmental suits per year from 1993 through 2002, and over 75 percent of these decisions

have been issued in citizen suits (May 2003: 8).7 Indeed, as May (2003: 7) suggests, citizen-suits

are "the engine that propels the field of environmental law. The vast majority of the legal

opinions issued under the nation's principal environmental statutes that allow citizen suits derive

from citizen litigation."8 Thus, one obvious use of citizen suits is that they provide a way of

shaping environmental law and its enforcement by influencing the interpretation and

implementation of statutes. This offers one explanation for the number of citizen suits that do go

through a trial, but there is another. Trial decisions provide evidence of credibility for groups

who threaten to pursue such suits in order to extract settlements. As Greve (1990: 357) explains,

"environmental groups are 'repeat players.' They have to demonstrate to potential future targets

that they are prepared to litigate; otherwise, their leverage in future negotiations will decline."

When a notice of intent to sue is filed by a private attorney general who has already pursued such

prosecution through the courts, the targeted defendant recognizes that she may face substantial

litigation costs, with a substantial probability of also losing at trial. This creates strong incentives

for the defendant to negotiate a settlement with the private prosecutor, as explained below.

The fact is that most citizen suits do not go through trial to a decision. To illustrate this,

the second column of Table 2 provides information regarding "Notices of Intent to Sue" under the

7 Note that the total number of citizen suit decisions, reported in Table 1, over this period is 831, giving an average of 83.1. 8 The legal ramifications of environmental citizen suits reach well beyond judicial interpretation of environmental statutes, however. The decisions in these suits extend into constitutional, administrative, property, and labor law and civil procedure (May 2003: 7). May (2003: 7) reports, for instance, that just five environmental citizen suits had been cited more than 10,000 times by federal courts through the end of 2002: Sierra Club v. Morton, 2,728 cites; Tennessee Valley Authority v. Hill, 437 U.S. 153 (1978), 1,882 cites; Gwaltney of Smithfield v. Chesapeake Bay Foundation, 484 U.S. 49 (1987), 809 cites; Lujan v.

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CWA, the CAA, the RCRA, and the MPRSA from 1995 through 2002. These numbers are

incomplete, perhaps even for these four statutes, as “many citizen actions and decisions in citizen

suits are unreported … [so] the number of citizen legal events is likely to be much greater” (May

2003: 9).9 In addition, data on citizen-suit activity are note readily available for most other

environmental statutes.10

Table 2: Notices of Intent to Sue (NIS) Year Total

NIS NIS Federal

Agencies NIS other than

Federal Agencies NIS State & Local

Governments CWA NIS

CAA NIS

1995 708 72 636 118 128 27 1996 591 58 533 126 179 20 1997 499 62 437 96 187 23 1998 666 76 590 137 237 29 1999 568 86 482 164* 151 8 2000 530 75 455 75 173 9 2001 397 71 326 85 119 9 2002 479 21 458 92 197 18 Total 4,438 521 3,917 893 1,371 143

Source: May (2003: 15 and 24) * This count is substantially higher than other entries in the column because several oil companies simultaneously sent notices of intent to almost every city clerk in California (May 2003: 14). Environmental statutes authorize citizen suits against enforcement agencies such as the

EPA (in order to force the agency to enforce statutes), and against violators of statutes and

regulatory rules. Therefore, the numbers reported in Table 2's second column include notices of

intent to sue enforcement agencies as well as suits against alleged violators. Legalized-extortion

arguments apply to suits against alleged violators. Therefore, notices of intent to sue the

Environmental Protection Agency, the Corps of Engineers, and other federal agencies, reported in

Defenders of Wildlife, 3, 916 cites; and Friends of the Earth, Inc. v. Laidlaw Environmental Services, Inc., 603 cites since 2000. 9 As an indication of the likelihood that these data are incomplete, data provided to Anderson and Fretwell (2001: 5) in June, 2001, by the Department of Justice, Environmental Resources, indicates that from 1988 to May 2001, more than 80 percent of the suits filed against non-federal parties under environmental statutes were CWA suits. Yet, the data from May (2003) reported in Table 2 actually suggests that more suits were filed under RCRA than under the CWA over this period. 10 May (2003: 2) explains that information on citizen suits under NEPA and ESA are not easily obtainable, for instance, but they clearly are pursued. See Anderson and Fretwell (2001: 12-16) for examples of citizen suits (and other methods of extortion) under the ESA. Even adding data on suits filed under NEPA and

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the third column, are subtracted from the total in column two to produce the figures in column

four. These numbers provide a more accurate indication of the potential level of extortion efforts

under the four environmental statutes represented by these data. Most, and perhaps all, of the

suits in column three are to force agency regulatory actions.11 Notices to sue federal agencies

only account for roughly 11.7 percent of the total, however, so "the vast majority of citizen suites

are filed against [alleged] polluters for not complying with permits and other requirements" (May

2003: 15).

Citizen suits initiated under federal environmental statutes are also filed against state and

local governments, as indicated by the fifth column in Table 2. Some of these suits are against

agencies of these governments allegedly in violation of the statutes and/or accompanying

regulatory requirements (an issue discussed in more detail below), while others may be against

state agencies responsible for enforcement of some Federal environmental statutes. The

remaining notices are against private entities allegedly in violation of federal environmental rules.

It is important to recognize that despite the limited sample of notices of intent to sue in

table 2, the total notices exceed the number of actual court decisions in Table 1 by a substantial

margin (the information in the final two columns of Table 2 is discussed below). Delay between

filing and trial does not explain the difference, nor does the fact that citizen suits must be dropped

if an enforcement agency initiates enforcement action against the alleged violator.12 Furthermore,

ESA would not provide the full picture. For instance, see Vahey's (1997a, 1997b) discussion of EPCRA citizen suits. 11 The data reported in May (2003) regarding notices to sue federal agencies is confusing since the numbers reported in his Table 2, columns 3, 4 and 5 (reporting total notices to sue the EPA, the Corps of Engineers, and other federal agencies) do not always correspond to the numbers reported in Column 8 of his Table 9 (total notices to sue the EPA which, according to the text, are action forcing suits), Column 5 in Tables 10 (total notices to sue the Corps which are suppose to be action forcing suits), and Column 5 in his Table 11 (total notices to sue other federal agencies, which the text suggests are action forcing suits). The expectation is that the numbers in May's Table 2 should be equal to the figures in Tables 9, 10, and 11. If all notices are action forcing suits, and greater if some notices are against agencies violating environmental statutes. In fact, however, there are some entries in May's Table 2 that are less than the corresponding entries in Tables 9, 10 and 11. 12 The Notice of Intent to Sue must be provided in writing to the alleged violator and the appropriate government regulatory authority, and the actual suit cannot be filed until 60 days after the notice is given. This gives the alleged violator a chance to take corrective action, and it gives the enforcement agency an

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the difference does not imply that large numbers of suits are simply dropped without a conclusion

of some kind. Instead, "most notices of intent to sue have led not to litigation but to negotiations

and, relatively quickly, to settlements and consent decrees" (Greve 1990: 355).

Public prosecutors have considerable discretion in deciding which individuals to

prosecute vigorously, which to bargain with, and which charges should simply be dropped.13

Private attorneys general have similar discretion. Indeed, they "are virtually unchecked in their

discretionary decisions to pursue penalty actions" (Blomquist 1988: 395).14 Furthermore,

prosecutors, both private and public, have considerable bargaining power, because they can

threaten to pursue the case to trial, thereby forcing the accused to bear substantial litigation costs

as well as punishment if they lose at trial. As Blomquist (1988: 402) explains, "In a traditional

government criminal prosecution, defendants are encouraged to plea bargain by admitting guilt in

opportunity to implement enforcement action. Most of the federal statutes prohibit citizen suits if the agency chooses to "diligently prosecute" the violator. The minimal impact of this requirement is discussed in note 14 below. 13 Plea and charge bargaining to achieve convictions in publicly prosecuted cases is common place, after all. In general, over 95 percent of all criminal convictions are achieved through such bargaining, for instance (Bar-Gill and Gazal 2004: 1). 14 Blomquist (1988: 395) goes on to explain that various statutory constraints on citizen suits "are illusory controls on the initiation of citizen penalty suite with little, if any, real restrictions on citizen prosecutorial discretion." These illusionary constraints include the sixty day notice requirement (e.g., under the CWA) and the citizen suit bar if the EPA or another relevant regulatory authority has "commenced and is diligently prosecuting a civil or criminal action in a court" (33 U.S.C. § 1365(b)(1)(B) (1982)). Blomquist (1988: 395-396) notes, for instance, that the courts have held the notice requirement to be satisfied even when "technical deficiencies" exist, if "the agency had time to investigate and act on the matter in issue, free of judicial compulsion" and where plaintiffs were involved in the permit proceedings well before the suit was filed (Roosvelt Campobello International Park Comm'n v. United States EPA, 711 F. 2d. 431, 434 n.7 I1st Cir. 1983). Notice requirements have also been treated as satisfied where it appears that going to the regulatory agency would not result in any action (Massachusetts v. United States Veterans Administration, 541 F. 2d. 119, 121-122 (1st Cir. 1976); National Resource Defense Council, Inc. v. Callaway, 524 F. 2d 79, 84 n.4 (2d Cir. 1975); Save Our Sound Fisheries Association v. Callaway, 429 F. Supp. 1136, 1142-45 (D.R.I. 1977)), and when the notice would not change the views of the agency (Susquehanna Valley Alliance v. Three Mile Island Nuclear Reactor, 619 F. 2d 231, 243 (3d Cir. 1980), cert. Denied, 449 U.S. 1096 (1981)). Indeed, the EPA and other enforcement agencies face significant tradeoffs as they consider responding to a notice of intent to sue. To prevent a suit over technical violations that have no impact on environmental quality, for instance, the agency must divert some of its scarce resources away from other potentially more critical environmental concerns in order to demonstrate that they have "commenced and is diligently prosecuting a civil or criminal action in a court." Furthermore, they only have 60 days to do so, and such a rapid reallocation of resources may be particularly costly at times. It may well be that the agency will choose to ignore the notice just as they ignored the violation, in order to pursue problems that they see as more pressing concerns. This issue is addressed further in Section III below.

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return for the government's willingness to lower the charge to an offense with less penalty

potential than the original charge. In a citizen penalty suit under the Clean Water Act [and

RCRA], analogous incentives and disincentives exist: citizen groups bargain for assessment of

penalties lower than the maximum in return for the defendant's agreement to pay the 'penalty' to a

private environmental cause instead of the Federal Treasury."

In an idealized, error-free justice system, no innocent person would ever agree to pay the

plaintiff in a settlement. Such perfection is impossible, however, so even innocent defendants will

settle under some circumstances (e.g., if the costs of the settlement are less than the anticipated

costs of litigation, particularly if the outcome of the litigation is uncertain).15 While most alleged

offenders in environmental citizen suits are "guilty" of some sort of technical violation of

environmental regulations, they need not be guilty of causing any real harm. For instance, Rossi

(1997: 219) cites Greve (1992: 111-112) in pointing out that the Atlantic States Legal Foundation

"brought multiple actions against private parties over violations of the voluminous paperwork

requirements of the Clean Water Act, not over violations of substantive environmental standards.

The action generated tens of thousands of dollars in attorney's fees, but produced no discernible

environmental benefits." Furthermore, the outcome of suits over violations of "substantive

environmental standards" need not have any "discernible environmental benefits" either.

Consider Friends of the Earth, Inc. v. Laidlaw Environmental Services, Inc., 528 U.S. 167

(2000), a case which obviously did not result in a settlement. Laidlaw had frequently violated its

NPDES permit under the CWA by exceeding its limit on mercury discharges into the North Tyger

River. Yet, the district court saw no evidence that the violations had any impact on

environmental quality whatsoever, and the river’s water quality exceeded standards

recommended for swimming and other recreation, and posed no health risk. Nonetheless, the

15 See Landes (1971) and Scott and Stuntz (1992), for instance. Critics of plea bargaining point to the probability that innocent defendants will plead guilty as a major flaw in the criminal justice system's heavy reliance on such bargains (e.g., Alschuler 1981, Finkelstein 1975). Similarly, as explained below, the statutory barriers to frivolous citizen suits are not effective (Dickinsn 1997: 1575-1579).

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citizen suit plaintiffs claimed that the knowledge of technical violations resulted in subjective

apprehensions that altered the behavior of some residents in the area. The plaintiffs could not

indicate what the values for such apprehension were, but the Court concluded that the “aesthetic

and recreational values of the area” were lessened. This ruling suggests that plaintiffs simply

have to argue that technical violations of environmental standards result in fear, apprehension, or

concern, which in turn leads to (claimed) modifications in behavior. Such a suit can succeed even

though the violation has no real impact on environmental quality at all, and therefore, no

measurable harm to anyone. A favorable ruling redresses the “injury” because the plaintiffs feel

better. When the courts are likely to rule in this way, the incentives for defendants to settle are

very strong.

II.1. Extortion by Environmental Interest Groups. In order to understand how the

threat of private prosecution under the environmental citizen suit provisions can be used to extort

money from alleged violators of environmental laws and regulations, the first thing that must be

recognized is that citizen suits are almost never pursued by individual citizens. Most private

citizens have neither the time nor the legal expertise (or funds to employ such expertise) needed

to determine whether a violation of a federal environmental statute has occurred, or to prosecute

alleged violations, but several environmental groups (many with their own legal departments)

do!16 As Greve (1990: 351) notes, "The vast majority of private enforcement actions has been

brought by environmental advocacy groups such as the National Resources Defense Council

(NRDC)."

16 For instance, Greve (1990: 354) reports that between May, 1984 and September, 1988, major environmental groups filed 532 Notices of Intent to Sue under the CWA while local groups and individuals filed 209, but he also suggests that “a closer look reveals that this figure exaggerates the extent to which ‘concerned citizens’ participate in private enforcement.” More than a the of these notices filed by local groups or individuals were instigated by just three individuals who “show a bias similar to that of environmental organizations” (Greve 1990: 362). Nonetheless, the local groups that do get involved in citizen suits may well have different motives than the national groups. Local groups appear to be relatively more concerned with environmental harms while national groups are relatively more likely to be interested in direct revenues (e.g., legal fees and others discussed below) and/or indirect revenues (donations and membership dues stimulated by highly visible citizen suits). See Seidenfeld (2000) and Seidenfeld and Nugent (2004) for insightful discussion about this issue.

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Greve (1990) explains that citizen-suit settlements result in some combination of four

elements. First, while most of the environmental laws that authorize citizen suits only provide for

awards of injunctive relief and legal costs, some also empower private attorneys general to sue for

civil penalties. If the alleged violation arises under these statutes (e.g., the CWA, RCRA after

1984) a fine paid to the federal treasury may be agreed upon. Such penalties can, in theory, be

substantial (e.g., $25,000 per violation per day). Second, methods and procedures for achieving

compliance with the relevant statute or regulatory requirements may be specified. Third, these

settlements inevitably include payments by the accused to the group represented by the private

attorney general, ostensibly to cover their costs related to the prosecution (but see details below).

Finally, the alleged violator is likely to agree to fund a so-called "supplemental environmental

project" (SEP; SEPs are also called “Environmentally Beneficial Expenditures” (EBEs),

“mitigation programs” or “credit programs”), often in lieu of some or all of the fine (see details

below).

Actually, prior to 1982 very few citizen suits were filed against alleged violators of

environmental laws and regulations (Greve 1990: 351-352). Instead, most citizen suits were

intended to force agency action. This changed in 1982, when the number of citizens suits, and

notices of intents to sue, began increasing dramatically (Greve 1990: 353-354):

This burst of activity resulted from a concerted enforcement program that was designed by the NRDC…. With a seed grant that helped to fund initial citizen suits, the NRDC established a self-sustaining [Clean Water] Act enforcement program, using attorneys' fees recovered in one case to fund future cases. A coalition of advocacy groups, including the Sierra Club Legal Defense Fund, Friends of the Earth, the Student Public Interest Research Group of New Jersey (SPIRG) the Atlantic States Legal Foundation, and the Connecticut Fund for the Environment, joined the NRDC's campaign. Notices of intent filed by these six groups account for 162 of the 214 notices issued under the Clean Water Act between 1982 and April 1984.

Greve (1990: 354) notes that the NRDC, the Sierra Club Legal Defense Fund, the Atlantic States

Legal Foundation, the Public Interest Research Group, and Friends of the Earth also filed over

half of the citizen suits between 1984 and 1988. The concentration of citizen suits within a small

number of environmental groups continued after Greve’s 1990 study. For instance, “the vast

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majority of penalties collected between 1988 and 1993 - $9.3 million out of a total of $11.3

million – were obtained in cases brought by four … groups who carefully screened potential

cases” (Lehner 1995: 8). May (2003: 3) notes that environmental groups' share of citizen suits

has declined in recent years, as "One in three citizen suits are brought by nontraditional citizens,

including companies, landowners, developers, industry, and, ever more frequently, states, and

faith based organizations." This fact does not undermine the fundamental points being made

here, however (in fact, it tends to do the opposite, as explained below).

Blomquist (1988: 383-384) explains that the difference between the ability to pursue

citizen suits in order to enjoin violations of pollution laws granted under most federal

environmental statutes, and the ability to pursue fines, as under the CWA and RCRA, "is more

than a difference in degree; it is a difference in kind. The [former]… is, in essence, a model of

citizens as prodders or government enforcement of environmental rules, the citizen as 'gadfly for

agency action.'" In contrast, the CWA and RCRA "threaten substantial liabilities" This threat

gives the private attorneys general considerable bargaining power, as the specter of large fines

can dramatically raise the expected cost of litigation for the defendant. After all, the incentives to

accept a settlement for the defendant arise only if the settlement costs less than the alternatives

(litigation costs and potential punishment expected by proceeding through trial). The threat of

large fines does not lead to settlements that include large fines, however. Indeed, by offering

them opportunities to collect large fines, the organizations acting as private attorneys general are

in a position to agree to very low fines in settlements in exchange for direct payments to the

organization. As Greve (1990: 357) explains, the amount that the defendant pays as a fine to the

federal treasury is "a 100 % tax on the private enforcer's recovery." The private enforcer's

recovery takes the form of attorney fees and other litigation costs, as well as SEPs.

Greve (1990: 358-359) cites Lewis' (1986: 10,102) review of consent orders from 1983,

for instance, when environmental groups collected four times as much in attorneys' fees than in

federal fines. In addition, millions of dollars were paid to environmental groups as SEPs to

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engage in research, education land purchases and other projects. Over 90 percent of the money

paid by industry in responds to CWA citizen suites in 1983 went to environmental organizations

rather than the Treasury. Similarly, Table 3 illustrates the rather small fines that characterize

relatively recent settlements. This Table lists the number of Citizen Suit Consent Decrees under

the CWA and CAA that were reviewed by the Department of Justice in the second column, along

with the civil penalties assessed in those suits in the third column, and credit projects or SEPs in

the fourth column. The average penalty collected per consent decree for the 1999-2001 period

(used in order to compare the results to available information on SEPs) is only $5,853.61. Note

how much larger the SEP payments are, with an average of almost 20 times the average fine.

Table 3: CWA and CAA Citizen Suit Consent Decrees (CDs) Reviewed by the DOJ Year CWA + CAA = total

CDs Reviewed Civil Penalties

Assessed Value of SEPs

Obtained 1996 48+2=51 $422,600 N/A 1997 54+1=55 N/A N/A 1998 37+6=43 $198,750 N/A 1999 41+3=44 $ 4,500 $2,470,867.60 2000 26+1=27 $ 25,800 $2,248,500.00 2001 20+6=26 $537,500 $4,728,075.00

1999-2001 Total 87+10=97 $567,800 $9,447,442.60 1999-2001 Average 29+3.3=32.3/year $5,853.61/CD $97,396.32/CD

Source: May (2003: 26-28).

Presumably the citizen or citizens group that actually prosecutes cannot "profit" from the

process (compensation for legal costs is not considered to be profit, even though these payments

are above actual expenditures, as explained below). Therefore, environmental organizations try

to avoid the appearance of inappropriate profit (Boyer and Meidinger 1986: 940; Greve 1990:

359), in part by directing SEPs to environmental organizations other than the prosecuting group

(Guida 1984: 24). In addition, "In order to facilitate these transactions, environmental groups

have created institutional 'shells' such as the Open Space Institute, which was specifically 'created

as a repository for cash settlements in Clean Water Act permit violation suits'" (Greve 1990: 354,

citing Stever 1987: 10,361). The Open Space Institute (OSI) was created by the NRDC, and out

of the more than $1.5 million in settlement payments for the thirty private enforcement actions

14

brought in Connecticut between 1983 and 1986, OSI was paid $869,500. The NRDC was one of

the two organizations which brought the vast majority of these suits. No fines were paid to the

U.S. Treasury in any of these settlements, and it as noted below, the NRDC also collected

substantial attorney fee compensation (Greve 1990: 359). Incentives to direct payments to SEPs

exists even without such shells, however. For instance, since the number of organizations

engaging in most private prosecutions of environmental citizen suits is actually quite small, and

they are virtually all repeat players, all can benefit over time, as settlements arranged by each

produce revenues for the others (Greve 1990, Alder 2001a, Barnett and Terrell 2001). Indeed,

Barnett and Terrell (2001: 9) "argue that environmental law is written in such a way that a cartel

of environmental advocacy groups is formed and maintained through citizen suits."

A cartel is an organization of economic entities (e.g., firms, governments as in the OPEC

cartel, criminal gangs as in the Columbia-based cocaine cartel) that coordinates their activities in

order to extract “rents.” Rents are returns above the opportunity costs of the resources

(opportunity costs are the returns that can be earned in the next best alternative use of the relevant

resource). Rents can be generated by cartels of sellers through activities such as restrictions on

output to raise price, given that the membership can effectively monitor and police the agreement.

Such monitoring and policing is most effectively carried out when the cartel membership is

relatively small. Rents also can be generated through legislative and/or regulatory processes if

the cartel can successfully lobby for special privileges or protections [e.g., tariffs or quotas that

limit foreign competition, environmental standards that raise costs to competitors outside the

cartel by more than the cost increases to cartel members (Maloney and McCormick 1982), as

discussed in Section III]. Under such circumstances, the government also may help police the

cartel, either directly (Benson 2002), or indirectly by reducing policing costs.

To support their contention that environmental advocacy groups are cartelized in their

pursuit of rents through citizen suits, Barnett and Terrell (2001: 15) point out that these groups

actively coordinate their activities. First, the major environmental groups have formed the

15

"Green Group" which meets regularly in Washington, D.C. (Adler 1995: 98). Second, through

citizen suits and settlement agreements to pay above-expenditures legal costs and fund SEPs,

environmental groups capture "abnormal returns." Third, there are barriers to entry into this

activity, since only environmental groups that have projects funded by defendant-financed SEPs

are able to capture the resulting rents. Independent lawyers could be compensated for their

services if they were to enter the private attorneys general business under these statutes (see the

discussion below), for instance, but they could not benefit from SEPs. Not surprisingly,

independent for-profit legal firms are not active in the environmental-citizen-suit arena (although

they are very active in the private attorneys general business that arises through class action suits

under tort law, as explained below). Fourth, the allocation of SEPs through the citizen-suit

process provides the cartel with an enforcement mechanism: "If an environmental organization

were to cheat on the cartel, or if a potential entrant into the environmental advocacy market were

to begin a strong membership drive, it would be relatively easy for the cartel to direct settlement

money away from the organization" (Barnett and Terrell 2001: 16).17 SEPs are not the only

means by which rents can be captured (extorted) through citizen suit settlements. Settlements

always include payments to the environmental group to cover attorney fees as well as other costs

arising in the litigation and/or settlement process. The fees agreed to in settlements are a function

of the fees that would be awarded at trial because the anticipated trial award provides part of the

incentives to settle. The U.S. Supreme Court generally favors the "American rule" under which

the parties to a lawsuit pay their own legal expenses, rather than the "English rule" or loser-pays

rule. However, Babich (2003: 220-221) explains that neither rule applies with environmental

17 Barnett and Terrell (2001: 16) cite Adler (1995) regarding other enforcement mechanisms that also can be employed. One appears to operate through the allocation of funding for environmental advocacy that comes from large foundations. They note that the Green Group itself (formerly called the Group of Ten) was created to encourage cooperation among environmental organizations (Barnett and Terrell 2001:17). In addition, the Environmental Grantmakers Association was founded by the Rockefeller Family Fund, in order to develop collaboration among potential and actual members of the group, and to increase the availability of resources for addressing environmental issues. A representative of one prominent foundation, quoting Joshua Reichert of the Pew Charitable trusts, explained that "As often the sole source

16

citizen suits: the citizen-suit provisions of federal environmental laws "are best understood as

employing a third alternative - the 'violator-pays' rule."18 In fact, violator-pays is mandated by

the environmental statutes. Beginning with the first statute to establish the power of private

attorneys general in environmental regulation, the 1970 CAA, citizen prosecutors were authorized

to recover their "reasonable" litigation costs from violators.19

Recognize that the English Rule discourages harassment litigation (e.g., frivolous claims,

suits with low probabilities of winning), while encouraging vigorous defense in such cases. The

disincentives to file harassment suits are weaker for potential plaintiffs under the American Rule,

as are the incentives to mount vigorous defenses. Thus, more suits of this kind should be files,

and fewer of them should go to trial, as defendants are relatively likely to settle to avoid high

litigation costs. On the other hand, the American Rule tends to discourage low-value suits even

when plaintiffs are likely to win, as the plaintiff may not recover enough to cover litigation costs.

Thus, under both the English and American Rules, litigation costs tend to discourage at least

some kinds of litigation where the costs of litigation are likely to exceed any aggregate benefits.

The violator-pays rule that applies in environmental citizen suits eliminates such disincentives.

Indeed, it tends to encourage both harassment and low-value suits,20 and it also encourages the

of funds for broad public outreach, grantmaking becomes the focal point for inter-organizational cooperation" (Adler 1995: 93, cited in Barnett and Terrell 2001: 17). 18 This is not a loser-pays rule because private attorneys general who lose a suit filed under the federal environmental statutes do not have to compensate the winning defendant for legal expenses unless the defendant can show that the "suit was frivolous, groundless, pursued in bad faith, or maintained after its baselessness becomes apparent" (Citizens for a Better Environment v. Steel Co., 230 F. 3d 923, 931 (7th Cir. 2000). See note 20 for additional discussion. 19 See for instance, CAA §§ 304(d), 307(f), 42 U.S.C. §§ 7604(d), 7607(f); RCRA § 7002(e) 42 U.S.C. § 6972(e) (2000). 20 Presumably, plaintiffs whose lawyers violate prohibitions against frivolous suits [R. Civ. P. 11 or 28 U.S.C. § 1927] will have to pay the defendant's litigation costs, even in environmental citizen suites (Babich 2003: 221). However, this potential constraint on harassment suits does not appear to be very significant at all. For instance, in Friends of the Earth v. Carey, 535 F. 2d 165, 172 (2d. Cir. 1976), the court explained that "Congress made clear that citizen groups are not to be treated as nuisances or troublemakers but rather as welcome participants in the vindication of environmental interests." Indeed, as Dickinson (1997: 1575) explains, "The statutory mechanisms typically cited as protecting against frivolous suits are twofold: one statutory provision awards litigation costs to the [defendant in the event of a frivolous suit] …[note omitted] and another prevents civil penalty awards from going to citizens. [note omitted] These mechanisms are flawed, however, because they do not adequately address the danger and because they implicate other policy concerns." He goes on to explain that supporters of environmental citizen suits

17

defendant to settle. Furthermore, as Babich (2003: 250) explains, the Supreme Court has

intentionally developed a "generous formulation" for determining when a plaintiff can be

awarded legal costs from defendants in citizen suits. Presumably, the private attorney general

must "achieve some degree of success on the merits"21 and "partial or limited success" may

warrant a reduction in such fees,22 but a reduction is clearly not mandated simply because a

"plaintiff fails to prevail on every contention raised" (Babich 2003: 250- 253).23 Indeed, fees

have actually been awarded despite "unsuccessful claims" if the court feels that the claims "are

substantially related to the claims on which plaintiffs succeeded."24 Apparently, the Court's view

is that litigation "may raise alternative grounds for a desired outcome, and the court's rejection of

or failure to reach certain grounds is not a sufficient reason for reducing a fee."25 The Courts'

assumption is that private attorneys general are "performing a public service"26 so they are

argue that because the initial expense of prosecution must be born by the "citizen" and they also may not recover those costs if the case is seen as frivolous, they are strongly discouraged from bringing such suits. However, since most citizen suits never go to trial, but instead are settled, these constraints tend to be trivial. Where the suit might be considered to be frivolous by a judge, the plaintiff simply has stronger incentives to settle by offering a relatively attractive settlement to the defendant, as explained above. The same point applies for the fact that fines go to the treasury rather than the plaintiff. Because most cases are settled, SEPs and litigation-cost reimbursements replace fines, and the fact that fines go to the treasury is not a significant constraint on prosecution decisions. Indeed, the fines give them greater bargaining power, thus encouraging them to pursue more (and more questionable) suits and resulting settlements. 21 A completely unsuccessful plaintiff may be denied compensation for litigation costs [Ruckeslhaus v. Sierra Club, 463 U.S. 463 U.S. 688 & n. 7 (1983)], but as suggested in notes 18 and 20, this does not mean that the defendant can recover litigation costs from the plaintiff. 22 Hensley v. Eckerhart 461 U.S. 424, 436 (1983). 23 Id. 24 American. Canoe Association v. EPA, 138 F. Supp. 2d 722 739 (E.D. Va. 2001). 25 Hensley, 461 U.S. at 435. 26 See Pennsylvania v. Del. Valley Citizens' Council for Clear Air, 478 U. S. 546, 560 (1986). It should be noted, however, that this "public interest" view of citizen suits is not accepted by all Justices (Babich 2003: 249). In Friends of the Earth v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 215 (2000) Justice Scalia's dissenting opinion (joined by Justice Thomas) contended that it is "undesirable and unconstitutional … to place the immense power of suing to enforce the public laws in private hands." Justice Kennedy's concurring opinion in the same case (Laidlaw, at 197) also suggests that the question of constitutionality of citizen suits remains open. After all, Article II of the U.S. Constitution states that it is the President's duty to "take Care that the Laws be faithfully executed" and dictates the methods of appointment for everyone exercising significant executive powers. The following presentation does not address this constitutionality issue. For discussion, see for example, Abell (1995) who concludes that environmental citizen suits are unconstitutional, as well as Johnson (2001) and Craig (2001) who conclude that they are constitutional.

18

entitled to "ordinary concepts of just returns."27 And importantly, these payments generally

exceed the actual expenditures made by the interest group.

Courts award fees based on the "lodestar" approach. Essentially, this approach involves

multiplying the number of hours "reasonably spent" by plaintiff attorneys "by an hourly rate that

reflects factors such as the skill and experience of counsel and prevailing rates in the applicable

legal market" (Babich 2003: 264). Importantly, however, the "applicable legal market" is not the

market that the environmental groups' lawyers come from. The "applicable legal market" is the

for-profit market for similar work, and "This rate usually far exceeds the salary of public interest

lawyers and the actual costs incurred by environmental organizations during the course of a

citizen suit" (Greve 1990: 356). This distinction is not considered to be relevant by the courts,

however. Despite the fact that "nonprofit" legal organizations do not have a conventional billing

rates and pay their legal staff much less than for-profit firms pay, "'reasonable fees' … are to be

calculated according to the prevailing market rates in the relevant community, regardless of

whether plaintiff is represented by private or nonprofit council."28 Thus, for instance, court

awarded fees in Student Public Interest Research Group of New Jersey v. AT & T Bell

Laboratories were 40 to 130 percent higher than the attorneys' normal billing rates for the

prosecuting attorneys. In this context, it also must be stressed that attorney fees are not the only

"costs" that environmental groups can be reimbursed for at above-actual-expenses levels (Barnett

and Terrell 2001: 12).

Courts have allowed private attorneys general to charge defendants for the amount of

time that paralegals and law students spend on the suit, other research and preparation time

including computer assistance, travel, consultation time, experts and expert witnesses, office

expenses (e.g., for phones, photocopying, and express mail), and even for "working-as

27 Ruckelshaus, 463 U.S. 680, 685 (1983). 28 Del. Valley Citizens' Council, 478 U.S. at 564; Blum v. Stenson, 465 U.S. 886, 895-96 (1984); Student Pub. Interest Research Group of New Jersey v. AT & T Bell Labs, 643 F. Supp. 961 (D.N.J. 1986).

19

appropriate to pursue … goals with the media" (Babich 2003: 255-257).29 Pursuing goals

through the media certainly is not a direct cost of litigation. Courts have awarded fees and other

costs for non-litigation expenses too, however. Such awards include fees arising in

administration proceedings, preparation of notices to intent to sue, preparation of fee petitions,

legislative lobbying activities, monitoring and enforcement costs arising after a judgement, and

costs arising from interventions into government enforcement actions (Babich 2003: 257-258).30

Since such awards arise upon completion of trials, defendants anticipate that litigation

costs are going to include not only their own legal costs, but also above-expenses reimbursements

to the organization acting as a private attorney general, on top of fines and other punishment.

Thus, their incentives to settle are relatively strong, in part because they see this source of

anticipated costs rising continuously as long as a settlement is not reached, as their own direct

legal costs are also rising. The quicker they can reach a settlement the better, as long as the

settlement is for less than their expected total costs of litigation and punishment. This gives

additional bargaining power to the environmental groups, since their expected returns above costs

actually continue to rise as their suits progresses toward trial, in contrast to the costs anticipated

by defendants. They expect to be over-compensated for the costs they are incurring, after all.31

Therefore, if they cannot extract substantial compensation and other benefits (i.e., SEPs), they can

continue toward trial.

Unfortunately, neither the EPA nor the DOJ record and keep data on the actual payments

made in settlements to cover attorney fees and other costs of prosecution (May 2003: 39), but

some anecdotal evidence of their magnitude has been discovered. Greve (1990: 359) reports that

29 See Babich (2003: notes 155 through 162) for citations to numerous cases in which such awards were approved. 30 See Babich (2003: notes 163 through 168) for citations to numerous cases in which awards for such activities were approved. 31 They also increase their credibility and therefore bargaining power with other actual or potential defendants, and they may also be able to attract more dues-paying members who feel that their dues are being spent to pursue and punish those actually causing environmental damages (Greve 1990: 79; Barnett and Terrrell 2001: 14-15).

20

out of the more than $1.5 million in settlement payments for the thirty private enforcement

actions brought in Connecticut between 1983 and 1986, for instance, attorneys’ fees to the

Connecticut Fund for the Environment and the NRDC amounted to $492,036. These two

organizations brought a substantial majority of the suits. Anderson and Fretwell (2001) examined

the Earthjustice Legal Defense Fund (formerly the Sierra Club Legal Defense Fund) Annual

Report 2000 which indicated that the organization had received almost $3 million in attorney fees

and costs in 1999. Similarly, NRDC reported (on NRDC 1998 form 990) that approximately 30

percent of its income, over $750,000, came from attorney fees in 1998 (Anderson and Fretwell

2001).

Even though environmental groups can collect more than their actual expenses as

compensation for their various prosecution costs, the amount that they can collect is somewhat

limited by the fact that they presumably must be able to account for actual (or at least reasonable)

time spent by legal staff, researchers, experts and so on. Thus, they may not be able to convert all

potential fines into these above-expenditures compensation payments. The SEPs provide a means

of converting much of the residual difference into transfers to environmental advocacy groups,

however.

At least some supporters of citizen suits have dismissed the contention made hear and

elsewhere (Greve 1990; Adler 2001; Barnett and Terrell 2001) that citizen suits are motivated by

the prospect of payments to environmental groups. For instance, Percival and Goger (2001: 132)

suggest that this contention fails to recognize that attorneys’ fees are only awarded to plaintiffs

who are successful in their suits, "which virtually guarantees that repeat plaintiffs will not be fully

compensated for their efforts.” That this counter argument is wrong is illustrated by cases such as

American Canoe Association v. EPA, where litigation costs were awarded despite unsuccessful

claims, but there is an even more significant reason for rejecting this counter argument: (1) the

vast majority of all citizen suits are settled, (2) settlements include compensation payments for

legal costs, (3) the level of compensation is determined, in part by the method of compensation

21

used by the courts in successful suits, (4) that method produces compensation payments that

exceed actual expenditures, and finally (5) settlements also include SEPs. It should not be

inferred from this discussion that environmental advocacy groups are simply profit-seeking firms,

however. No doubt, they still are vitally concerned about environmental issues, but the citizen-

suit option means that they are also concerned about their capacity to prosecute, since it is a

source of funding. Therefore, they face a tradeoff: if an investment (e.g., allocation of the

organization's limited resources) increases one benefit but reduces the other, they must weigh the

relative costs and benefits. An investment in a lobbying effort to change a statute or regulation,

or in a land purchase, might be expected to directly result in improved environmental quality, but

using the same amount of funding and/or personnel time in finding technical violations of an

environmental statute or regulatory requirement could result in substantial funding even though it

has no direct impact on environmental quality. Perhaps the resulting funds can be used to finance

future activities that increase environmental quality, of course (or future citizen suits to capture

more revenues), but there still is a tradeoff between current and future benefits. How

environmental groups make these choices provides evidence of the strength of their revenue

seeking incentives: that is, incentives to extort money and property.

Even though the CAA citizen suit provisions were passed first, the initial burst of

environmental citizen suits against alleged violators (rather than against enforcement agencies)

were filed under the CWA by a small coalition of advocacy groups led by the NRDC. As Greve

(1990: 351) explains, "Most commentators have concluded that the post-1982 surge of

enforcement under the Clean Water Act cannot be ascribed to the ideological commitments or

accidental preference of environmental groups, a sudden deterioration of water quality or the

perception of such a deterioration, or a slackening of government enforcement, but it was

triggered by the uniquely favorable incentives provided by the Act and its regulatory

progeny.[footnote to Boyer and Meidinger (1985: 9-17-20); Note (1986: 820-821); Fadil (1985:

54-70)]" This same relative focus appears to continue (Anderson and Fretwell 2001), as

22

suggested by examining both Table 2, which shows Notices of Intent to Sue under the CWA and

CAA in the final two columns (there were 9.59 times as many Notices to Sue under the CWA than

under the CAA over the 1995-2002 period) and Table 3, which shows the breakdown between

CWA and CAA consent decrees approved by the DOJ (there were 11.89 times as many CWA

consent decrees than CAA consent decrees between 1996 and 2001).32 Why?

The CWA prohibits discharges of pollutants into navigable waters except for discharges

in compliance with the Act's provisions. This includes compliance with the discharge permits

authorized under Section 402's National Pollutant Discharge Elimination System (NPDES). The

courts are authorized to impose the civil penalties discussed above for violations of these

discharge permits, and each day counts as a separate violation. And importantly, those economic

entities that are required to have NPDES permits must file Discharge Monitoring Reports

(DMRs) with the EPA. One result of this requirement has been the creation of record-keeping

system containing all such reports. These records are available to anyone who wants to examine

them, and environmental organizations have trained student volunteers to scan DMRs in search of

violations (Fadil 1985: 37). The information gathered by volunutees is then reviewed by the

organization's staff attorneys. Then, "Depending on the severity and frequency of violations and

a number of other factors, environmental groups file notices to sue, usually offering to discuss the

matter with the alleged violator" (Greve 1990:355). The focus on recent and frequent violations

of permit limits reflects the facts that isolated violations are not likely to be punishable [40 C.F.R.

§ 122.41(n) (1989)], that the courts have ruled CWA citizen suits must address "ongoing"

32 Note that the remainder of the Notices of Intent to Sue in Table 2 are almost all filed under the RCRA (the only exception is five notices under the MPRSA from 1999) regarding violations relating to the Solid Waste and Emergency Response Division (May 2003: 15). Notices of Intent to Sue under RCRA apparently have been rising relatively rapidly so they supposedly exceed the number under the CWA by a small amount over the time period represented in Table 2. Recall the point made in footnote 9, however, suggesting that the data in Table 2 may be incomplete, as the Department of Justice reported to Anderson and Fretwell (2001) the vast majority of suits under environmental statutes were filed under the CWA over this period. Nonetheless, RCRA clearly is also an important, and perhaps increasingly important source of citizen suits. This development is discussed below.

23

violations,33 and perhaps more importantly, that "settlement awards are likely to increase with

the number of alleged violations" (Greve 1990: 362). The documents prepared for a large

number of complaints and notices of intent to sue are essentially identical, so the cost of

preparing additional filings are low. Thus, the CWA creates a very attractive revenue-raising

opportunity for environmental groups by lowering the cost of filing citizen suits and raising the

potential revenues. After all, the fines mandated by the Act, which are not available under most

other environmental statutes, increase the ability of the environmental groups to extract payments

from defendants through settlement negotiations.34 Indeed, as Greve (1990: 365-366) explains:

The incentives provided by environmental law and by the Clean Water Act in particular have only rarely and coincidentally generated enforcement choices close to those that would result from an impartial, disinterested assessment of the public environmental benefits to be gained from enforcement…. An enforcer who considered nothing but the public environmental benefits of alternative enforcement strategies would scarcely focus virtually all his energies upon the Clean Water Act and the NPDES permit program.[footnote omitted] …. To mention … [an] example of the disparity between private rewards and public benefits, the violations that are easiest to prove, and therefore, attract the particular attention of private enforcers, often turn out to be paperwork violations rather than substantive violations.[footnote: Interview with Roger J. Marzulla, Former Assistant Attorney General, Lands and Natural Resources, 1987-1988 (Oct. 10, 1989)]. Enforcement proceedings brought for violations of the voluminous paperwork requirements of the Clean Water Act generate tens of thousands of dollars in attorneys’ fees but no discernible environmental benefits.

The focus by environmental groups on the NPDES permits and DMRs under the CWA suggests

that a primary motivation for these groups is to raise revenues.

The NPDES program involves regulation of thousands of point sources of water pollution

such as industrial plants and municipal sewer systems. Nonetheless, “Compliance with permit

terms does not ensure water quality, as the permit terms do not correlate with those measures that

are necessary to maintain water quality” (Adler 2001a: 49). This is the case, at least in part,

because the vast majority of water pollutants originate from nonpoint sources, such as runoff

33 Hamker v. Diamond Shamrock Chem. Co., 756 F.2d 392, 395 (5th Cir. 1985); Gwaltney of Smithfield v. Chesapeake Bay Found., 484 U.S. 49, 64 (1987). The CWA §505, 33 U.S.C. § 1365(a)(1) (1988) also appears to direct citizens suits against ongoing violations rather than past violations (Greve 1990: 349).

24

from agricultural lands, construction sites, and roads. As Hayward (2004:52) explains, “we still

are not capable of measuring water quality systematically for purposes of national reporting,” so

any precise claims about the sources of water pollution have to be viewed as tentative. However,

The EPA (1988) did provide an estimate of the portion of stream water pollution from municipal,

industrial, and nonpoint sources for 1986: 65 percent of stream pollution was estimated to come

from nonpoint sources, while 17 percent was from municipal government sources and 9 percent

from industrial sources.35 Furthermore, a 1992 EPA report admitts that roughly 18,000 bodies of

water would not meet water quality standards even if all of the point source effluent limits were

met (Adler 2001a: 63). Assuming that the various EPA estimates listed here are at least relatively

accurate, it follows that if the environmental groups who were active in citizen suits at the time

were primarily concerned about reducing water pollution they would have focused a relatively

large portion of their resources on efforts to reduce nonpoint sources.36 This would have required

investments in scientific study and monitoring, however, or the development of new regulatory

strategies of some sort,37 rather than simply examining DARs for paperwork or technical

violations. The fact that citizen suits are not targeting farms, providers of public roads (federal,

state, and local governments), or construction sites suggests that they prefer to pursue revenues

through the low cost means provided by point-source DARs.

34 While the CAA allows suits for past violations "if there is evidence that the alleged violations have been repeated" [CAA § 42 U.S.C. § 7604(a)(1) (2000)], the easily accessible records of violations are not available. 35 I have searched for a more recent estimate, but have not been able to find one. 36 The same point applies to the EPA, of course. Yet, as Greve (1990: 379) notes, the EPA has chosen a technology-based set of regulatory standards and a “strong bias” towards regulation of point sources that can be required to monitor their discharges and report them to the EPA. These sources are easier to regulate, just as they are easier to sue. See Section III for additional discussion. 37 For instance, the Tar-Pamlico River in North Carolina was declared nutrient sensitive in 1989, but all point source dischargers were in compliance with their permits. These point sources only accounted for 15 percent of the nutrient discharge in the river basin, however, so imposition of stronger discharge limits on these sources would not have solved the problem. “In the end, local officials were allowed to implement a marketable pollution credit scheme to facilitate non-point source pollution control – a more effective environmental protection strategy than more stringent enforcement of a permitting regime” (Adler 2001a: 63, citing Yandle 1997: 60-61).

25

The implication that revenues are at least one of the main objectives of the environmental

groups pursing citizen suits is further supported by an examination of the targets of these citizen

suits. As noted above, EPA estimates suggest that municipal governments were responsible for

almost twice as much water pollution as industrial firms in 1986. In fact, 37 percent of the

municipal facilities were not in compliance with their NPDES permits that year (EPA 1986).

Furthermore, municipal facilities generally face less stringent permit requirements than private

firms (Seidenfeld 2000: 460-461). Municipal facilities' permit standards are aimed at ensuring

against threats to health and the environment, while industrial permits generally impose

"technologically based standards, which are not justified by the need to maintain safe and

environmentally sound levels of water quality" (Seidenfeld 2000: 461). Specifically, and unlike

public facilities, privately owned point sources face permit standards based on either the "best

practicable control technology" criterion or the "best available technology economically

achievable" criterion regardless of the health or environmental impacts of the discharge.

Nonetheless, environmental groups "rarely have sued publicly owned wastewater treatment

facilities even though these facilities account for more pollution than industrial sources, and

despite that provisions in treatment facility permits are more closely tied to water quality than

those of industrial plant permits" (Seidenfeld 2000: 462). Between 1978 and 1984, for instance,

environmental groups did not file a single notice of intent to sue against a municipality while

taking 162 actions against private industry. 61 notices of intent to sue actually were filed against

municipalities by major environmental groups between 1984 and 1988, but more than six times as

many (401) were filed against industrial firms (Greve 1990: 354, Table 1).38 Table 2 above

suggests that the bias toward suits against industrial firms has continued. Greve (1990: 362-363)

38 Recall from footnote note 14 that local organizations and individuals filed a number of citizen suits during this period as well. A comparison of the targets of these suits with the targets of suits instituted by national environmental organizations reinforces the contention that the national groups are at least partly motivated by the pursuit of revenues. If we remove the 81 notices of intent to sue filed by the three individuals who Greve (1990: 362) suggests have biases similar to those of the major environmental

26

explains that "This pronounced preference for proceeding against private industry cannot be

explained by environmental considerations… Rather, this preference is explained by economic

calculations. A private corporation’s greater capacity for fast, authoritative decisionmaking

makes settlement negotiations less complicated and expensive than negotiations with a

bureaucratized government body that worries about the legality of settlements and about its

accountability to the electorate." In this context, for instance, Fadil (1985: 53) interviewed

attorneys for environmental groups who suggested that fee amounts are more of an issue with

governments than they are with private firms.

Further evidence of a focus on revenues rather than environmental improvement is

provided by the large number of citizen suits "involving record-keeping violations, the correction

of which provided no direct benefit to environmental quality" (Seidenfeld 2000: 462). The

Atlantic States Legal Foundation brought a number of suits against industrial defendants over

violations of CWA record-keeping requirements, for instance, and gained large amounts of

revenues for attorney's fees without any obvious environmental impacts (Rossi 1997: 219, Greve

1992: 111-112). Other groups, such as Citizens for a Better Environment, and the Public Interest

Research Group of New Jersey, have also pursued citizen suits over record-keeping violations.39

II.2. Entry into the Environmental Extortion Arena. The success of the

environmental groups in establishing liberal standing rules and extorting money from industrial

firms has certainly not gone unnoticed by non-environmental interests. To illustrate this, let us

focus on examples under the RCRA, in light of the growing importance of such citizen suits. In

fact, data from May (2003) cited above imply that over the last several years there have been

more Notices of Intent to Sue under the RCRA than under the CWA. The incomplete nature of the

data means that this implication is tentative, but it does appear that the RCRA is an important, and

organizations, then 64 of the remaining suits by individuals and local groups where filed against governments compared to 55 against private industry.

27

perhaps an increasingly important, source of citizen suits. Greve (1990) found to be the primary

target for private attorneys general was CWA violations, but there are several reasons for the

increasing focus on RCRA relative to the CWA. First, RCRA was not passed as early as the

CWA and the RCRA regulatory program itself was not created until November 19, 1980, after a

court order for the EPA to do so.40 Second, the 1984 amended RCRA established a very rigid

statutory framework including technologically stringent requirements for treatment of hazardous

waste, and for the storage of treated waste. Any facility that has treated, stored or disposed of

hazardous waste on or after November 19, 1980 has to notify the EPA of its activities, and once

notified, the EPA is required to inspect the facility to make sure that it meets the technical

standards required by the Act, and to regulate the facility from that point forward. For instance,

treatment before land disposal clearly makes some waste residue harmless, and yet Congress

mandated that land disposal facilities for all treated waste meet strict technological requirements,

such as double liners, leachate collection systems, and leak detection systems.41 Thus, like the

CWA, RCRA involves specific technical requirements that must be monitored, extensive record

keeping, and therefore, relatively low costs of searching for violations. Third, The 1984

amendment of the statute also authorized fines up to $25,000 a day for each violation of RCRA

regulations. As with the CWA, the threat of large fines give private attorneys general substantial

bargaining power, increasing the likelihood of settlements with large SEPs and payments for the

costs of prosecution. Fourth, like other environmental laws, the RCRA citizen suit provisions

allow suits against agencies for non action or for review of final actions, and enforcement suits

39 See for instance, Citizens for a better Environment v. Steel Co., F.3d 1237, 1241 (7th Cir. 1996) rev'd, 523 U.S. 83 (1998), and Public Interest Research Group of New Jersey, Inc. v. Magnesium Elektron, Inc., 40 ERC 1917, 1927-28 (D.N.J. 1995), rev'd, 123 F.3d 111, 120, 123 (3d Cir. 1997). 40 See Illinois v. Costle, 9 Envtl. L. Rep. 20243 (D.D.C. Jan 3, 1979; 45 Fed. Reg. 33,084 (May 19, 1980). This was a citizen suit to compel enforcement (Babich 2003: 235). 41 See RCRA § 3004, 42 U.S.C. § 6924(o) (2000). The only way for a waste site to avoid the high cost of maintaining such technical standards even for harmless waste is for the regulated entity to petition for delisting and demonstrating that "the waste no longer meets any of the criteria for which it was listed, and that it is not hazardous because of any other factor reasonably identified by the EPA" (RCRA § 3001 (f), 40 C.F.R. § 260.22 (2002)), an effort that clearly can require litigation for success [see American Chemical

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against violators of the statute's provisions, as well as the regulations, orders, and permits

promulgated under the statute, but the RCRA goes a step further. The RCRA also allows

"abatement suits to stop or prevent conduct that poses [alleged] significant risks to the public or

environment, regardless of whether that conduct violates" the RCRA or its regulatory

requirements (Blomquist 1988: 244-245). Fifth, but in contrast to the CWA's emphasis on on-

going violations, RCRA citizen suits can prosecute past violations that "may present an imminent

and substantial endangerment."42 Furthermore, the Courts have not interpreted "imminent" to

mean "immediate"; the anticipated harm may not occur for some time, and the degree of risk does

not have to be quantified.43 Essentially, all that is required is that a cause for concern be

identified. Thus, the burden of proof for a private attorney general appears to be relatively weak,

making suits and settlements under RCRA relatively attractive. Let us consider some of the

consequences.

As with the CWA, citizen suits can be filed under RCRA for technical violations of the

regulatory requirements. For instance, the Courts treat the technical violation of failure to notify

as a continuing violation.44 Environmental Defense Fund v. Lamphier involves a defendant

started disposing of waste in 1974 by burying it in drums or placing it in lagoons. In December

of 1979 the state ordered the defendant to store additional waste above ground rather than

disposing of it. The defendant stopped receiving waste in March, 1980, however, so no waste

was received or disposed of on or after the date specified in the statute, and the defendant did not

submit a notice to the EPA as a consequence. Hazardous waste sites that were established before

November 19, 1980, but where waste was not deposited after this date are not subject to the strict

technical regulations promulgated under the statute. However, if the soil at the site is disturbed,

Council v. EPA, 337 F. 3d 1060 (D.C. Cir 2003), and McLouth Steel Products v Thomas, 838 F.2d 1317, 1319 (D.C. Cir. 1988)]. 42 RCRA § 42 U.S.C. § 6972(a)(1)(B) (2000). Also see Albany Bank & Trust v. Exxon Mobil Corp., 310 F.3d 969, 970 (7th Cir. 2002). 43 Me. People's Alliance v. Hotrachem Manufacturing Co., 211 F. Supp. 2d 237, 247 (D. Me. 2002).

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as it is in a cleanup, the site comes under regulatory scrutiny as "generating" waste: the soil in

which the pre-November 19, 1980 waste was stored. As a result, the soil is subject to the

RCRA's expensive treatment standards. This was part of Lamphier's undoing, as they partially

cleaned up the site, although they did not remove all of the drums. A citizen suit was brought

against the defendant alleging violation of RCRA notification and permitting requirements. The

district and then the circuit court of appeals both ruled that the defendant was engaged in

operating a waste facility within the meaning of RCRA, and would be until no drums of waste

remained.

Rulings such as Environmental Defense Fund v. Lamphier appear to make the owners

of many locations that have, at sometime in the past, had hazardous waste disposed on it

vulnerable to litigation threats whenever the waste site is disturbed, even for cleanup. Obviously,

the incentives to cleanup such sites are severely undermined as a result. The EPA recognized this

and attempted to alter the potentially detrimental incentives, but the groups pursuing citizen suits

resisted such changes. Finally, in 2002, "after years of litigation and negotiation [the] EPA

finalized revisions to a regulatory exception to the statute's reach, known as the corrective action

management unit or CAMU…. Although one might argue that this exception violates RCRA, a

protracted negotiation process - which allowed EPA to accommodate concerns of the most likely

litigants - generated a result that may avoid the need for a judicial answer to the question of

CAMU's legality. Although reasonable people might differ about the EPA's CAMU standards,

the primary thrust of EPA's regulatory effort - to remove unintended dsincentives to cleanup

created by the literal language of a complex regulatory scheme - is easily characterized as a wise

use of administrative rulemaking to better attain congressional goals" (Babich 2003: 236-237).

Note Babich's suggestion that the negotiations "may" keep CAMU activities out of the courts,

however. There clearly is no guarantee. After all, it appears that environmental groups are using

44 See City of Toledo v. Beazer Materials & Services 833 F. Supp. 646, 656 (N.D. Ohio 1993); Environmental Defense Fund v. Lamphier 714 F.2d 331 (4th Cir. 1983).

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RCRA in the same way that Greve (1990) suggests they use the CWA. Non-environmental

entities have discovered that they also can use citizen suits to gain wealth, however, and RCRA

has been particularly attractive in this regard. 45 Consider the implications of City of Toledo v.

Beazer Materials & Services. The defendant was the previous owner of a site that had been sold

to the plaintiff. For a time prior to the sale, the defendant had disposed of hazardous waste on the

site but this practice was ended long before the suit. Indeed, the plaintiff owned and operated the

site when the suit was filed, and the defendant had no control over the site whatsoever, including

no influence over the maintenance of the disposed waste. The plaintiff filed under the citizen-suit

provisions, maintaining that the defendant was still liable for compliance with RCRA

requirements, however, including notification requirements. The court ruled for plaintiff. The

result is a transfer of wealth from the defendant as liability for compliance, cleanup, and other

consequences of the site are not born by the current landowner (who presumably was able to

purchase the land relatively cheaply because there was waste stored on it). The previous

landowner (who presumably accepted a relatively low price for the land because the sale was

expected to transfer any costs of cleanup to the buyer) faces these costs.

The citizen suit provision of RCRA has also proven to be attractive to waste disposal

firms who want to "dispose" of competitors as well as waste. Since industrial production in the

United States generates hundreds of millions of tons of hazardous waste each year, the waste

incineration industry has been able to charge hundreds of dollars per ton to destroy such waste

(Adler 1997: 97; Barnett and Terrell 2001: 27). The waste incineration industry is regulated under

45 May (2003: 21) contends, however, that "nearly all [notices of intent to sue] under RCRA, are

sent by members of the regulated community.” "Members of the regulated community" have attempted to use citizen suits under the RCRA, but May's contention that nearly all such suits are initiated by these "citizens" is somewhat questionable. After all, courts have denied standing to business firms attempting to have sanctions imposed on competitors (Rabkin 1998: 190). See Hazardous Waste Treatment Council v. Thomas, 885 F. 2d 918 (D.C. Cir. 1989); Hazardous Waste Treatment Council v. EPA, 861 F. 2d 277 (D.C. Cir. 1988). Of course, suits had to be brought for the courts to make these rulings. In addition, as explained below, perhaps in part because of such rulings, some businesses have attempted to use RCRA citizen suits by creating or funding an environmental organization to front for them. Nonetheless, May (2003) implies that the fact that regulated or potentially-regulated entities file citizen suits under the RCRA

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the RCRA, of course. However, cement industry kilns burn hot enough to destroy some

hazardous waste while meeting EPA standards for emissions, so in the 1980s cement firms began

doing so, taking business away from companies exclusively involved in waste incineration.

Cement firms charged about $100 per ton to burn liquid hazardous waste in 1990, compared to

the $284 price charged by waste incinerators (Barnett and Terrell 2001: 27, citing Bennett 1995).

After all, the energy generated in burning waste by the waste incinerator firms is itself wasted,

while cement firms employ a large amount of energy in their production processes, generally by

burning coal. The liquid waste they burn serves as an input into production and reduces the

amount of coal they have to burn. Naturally, cement kilns also have to comply with RCRA

regulations, so burning waste is not costless, but they still have a considerable cost advantage

over firms who simply burn waste. This cost advantage has grown even more significant as new

technology now allows cement kilns to burn solid waste too. Indeed, by 1991, more than 60

percent of the waste incineration market had been taken over by cement firms (Barnett and

Terrell 2001: 27, citing Rubenstein 1996: 26). Naturally, members of the waste incinerator

industry would prefer to eliminate competition from cement kilns, and citizen suits offer one

possible avenue of attach against these competitors.46 While standing has not been granted

directly to firms,47 they have still found ways to take advantage of the citizen suit provision.

Keystone Cement Company of Bath Pennsylvania was earning about 15 percent of its

revenues from payments for burning hazardous waste in 1995 when what was alleged to be a

counters the contention that citizen suit actions reflect, to a substantial degree, efforts to transfer wealth rather than to improve environmental quality. 46 Some members of the waste incinerator industry chose to compete in the political arena (as well as through litigation, as noted below), forming the Association for Responsible Thermal Treatment (ARTT) in late 1993. ARTT's stated purpose is to advocate “that combustion of hazardous waste be done using the most advanced technology possible and under the most stringent standards” (Barnett and Terrell 2001: 27, citing Tripoli 1996: 4). Naturally, they contend that cement kilns are not the most advanced technology and that they do not operate under the most stringent conditions. Cement firms who burn waste have formed the Cement Kiln Recycling Coalition and the two industry-based interest groups have waged a lobbying and public relations battle since then, trying to influence environmental regulations in ways that favor one over the other. See Section III below for more on the use of environmental laws and regulations by industrial groups to manipulate the competitive environment. 47 See note 45.

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local environmental group, Pennsylvania Environmental Enforcement Project (PEEP), filed an

RCRA citizen suit against the firm. PEEP alleged that Keystone’s waste burning posed “an

imminent threat to public health” (Adler 2001a: 60).48 Importantly, PEEP had been formed just

weeks before the suit was filed, and it “had received $250,000 from the Environmental

Responsibility Fund, which was, in turn, controlled by a subsidiary of Rollins Environmental

Services, a major incinerator operator” (Adler 2001: 60, citing Rubenstein 1996) and a member of

ARTT.49 Not surprisingly, a PEEP representative testified that PEEP was not opposed to all

hazardous waste incineration, but they were opposed to incineration in cement kilns (Barnett and

Terrell 2001: 27-28, citing Rubenstein 1996: 27 and Tripoli 1996: 3). Keystone’s lawyers

became suspicious of PEEP's "public interest" claims, so when they sought discovery of the

scientific basis of PEEP’s allegations they also demanded information on PEEP’s funding

sources. Rollins spokespersons initially denied any connection with PEEP, but court released

documents prove the connection (Barnett and Terrell 2001: 28 citing Rubenstein 1996: 27).50

These documents also “clearly show an effort by Rollins to raise the costs of cement kiln rivals.

For example, one Rollins memo lists the cement kilns ‘most vulnerable’ to additional regulation,

noting: ‘Kilns or companies with the smallest waste rates should be most vulnerable…. For these

kilns the cost of regulatory and compliance efforts would be a higher percentage of waste

revenues. Any additional costs would have a smaller denominator in affecting the cost per pound

of burning.’ [footnote citing a “Memorandum from Charles Lamb to Phil Retallick, Cent Kiln

Strategy (Nov. 17, 1955)]” (Barnett and Terrell 2001: 28). Not surprisingly, after the case was

settled, PEEP dissolved (Barnett and Terrell 2001: 28).

48 PEEP also alleged violations of the CAA and EPCRA (Barnett and Terrell 2001: 26, citing Tripoli 1996: 2). 49 See footnote 42. Indeed, one of PEEP’s lawyers was the chief lobbyist for ARTT. 50 As Adler (2001a: 60) notes, these documents were kept confidential under court seal until Keystone sued for public disclosure. The federal district court concluded that “when a corporation attempts to use the litigation process to injure a competitor under the guise of a public interest lawsuit, this court will remove the shield of confidentiality protecting the masquerade and allow the public to judge the merits of the dispute with full knowledge of the debate’s participants” (Pennsylvania Environmental Enforcement Project v. Keystone Cement, Civil Action No. 96-588 (D.C. Del. 1997), at 9).

33

The Keystone case apparently is not unique. Barnett and Terrell (2001: 28-29) provide

two other examples where cement companies face citizen suits that appear to be backed by the

waste incinerator industry, one in Texas and one in Michigan. While the defendants in Texas

have not been able to definitively prove that incinerator firms initiated the lawsuit, they do know

that one of the citizen groups, Downwinders at Risk, has received donations from ARTT, and that

the American Lung Association (ALA), also part of the prosecution coalition, used a $46,000

grant from ARTT to fund the prosecution. This grant was specifically designated as funds to use

against Texas cement kilns.51 Similarly, the Huron Environmental Activist League (HEAL) filed

a suit against Lafarge, a cement company in Michigan, and Lafarge suspects that HEAL has been

supported by funds that ARTT donated to the ALA (Barnett and Terrell 2001: 29, citing Tripoli

1996: 4).

The possibility that wealth can be transferred from one regulated or potentially regulated

entity to another through the use of a citizen suit is not limited to RCRA violations. As Adler

(2001a: 60) notes, “Economic interest groups have also been able to take advantage of

environmental citizen suits [in general] due to broad standing rules.” Since the courts do not

require that private attorneys general demonstrate injury in fact,52 the plaintiff need not have an

actual environmental stake in the violation. Thus, “there is little to prevent private plaintiffs from

using citizen-suit provisions as a means of pursuing other agendas – from NIMBY opposition to

development to economic rent-seeking or organizational empire building” (Adler 2001a: 61). For

instance, Northrup and White (1995) provide several examples of union uses of environmental

citizen suits directed against non-union firms. Construction unions challenge non-union

construction firms' permit applications, for example, alleging that they do “not protect sufficiently

the air or water quality, that drainage or waste disposal plans are insufficient, or that the

51 In fact, ARTT made a $150,000 donations the American Lung Association (ALA) shortly after the industrial group was founded and this donation has been followed by others (Barnett and Terrell 2001:28). Bennett (1995) discusses the ARTT-ALA connection in more detail. 52 See the discussion in footnote 6.

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construction plan violates other environmental regulations” (Northrup and White 1995: 61). Like

industrial groups, unions also apparently fund and even create environmental or consumer groups

who pursue citizen suits against non-union firms, and it is pretty clear that these union activities

are “more designed to inflict cost on the users than to protect the environment” (Northrup and

White 1995: 62). Like environmental groups, unions can also extort above cost legal fees from

firms by bringing citizen suits under the CWA or other environmental statutes: Northrup and

White (1995) find a number of union-based citizen suits against utility, oil, and gas companies.53

May (2003: 3) contention that approximately a third of the citizen suits aree now being

brought by “nontraditional citizens” was an attempt to undermine Greve’s (1990: 390) arguments

that citizen suit provisions are, in large part, wealth transfer mechanisms employed by

environmental groups.54 It appears, however, that many of these “nontraditional citizens” are

also using the private-attorney-general powers granted under environmental citizen suit

provisions in the pursuit of wealth that they can extract (extort) from private firms. Whether

these involuntary wealth transfers are extortion or not depends on whether the power to pursue

such suits is "undue."

III. Is the Power Given to Private Attorneys General by Environmental Statutes Undue?

While the preceding discussion of citizen suit activities by environmental groups and

other economic entities strongly suggests that the powers granted to private attorneys general

under the federal environmental statutes are being used to obtain wealth transfers, it does not

necessarily follow that these transfers should be called extortion. Even some supporters of citizen

suit provisions recognize that they are imperfect mechanisms for achieving environmental

53 For instance, “Labor for the Public Interest” filed a CWA suit against Union Oil alleging violation of pollution permits and seeking an injunction along with the $25,000 civil penalties for each alleged violation (Northrup and White 1995: 81). Both court decisions and settlements in suits like this result in above-expenditure compensation for legal fees and other litigation-related costs, of course, as noted above. 54 See note 45. These nontraditional citizens are groups other than the major environmental organizations as well as “consumer groups, civil rights groups, community activists, among others [who are] uniformly constituencies of the Democratic Party” (May 2003: 3, quoting Greve 1990: 390).

35

improvements,55 but still conclude that the benefits exceed the costs arising from such problems,

thus suggesting that the powers are not undue. For instance, Thomspon (2000) recognizes that

there is a strong potential for what he calls a “zealousness error” in citizen-suit prosecution (also

see Zinn (2002)). Nonetheless, he concludes that various benefits of citizen suits, including the

tendency to counteract the “leniency error” on the part of the EPA, and the “democratic values of

citizen suits” dominate such potential costs. Indeed, several arguments have been put forth that

supposedly justify the powers given to private attorneys general (i.e., imply that the power is not

“undue”), apparently with some success. As Garth, et al. (1988: 353) note, the idea of private

attorneys general enjoys support from both the left and the right of the political spectrum, but for

“widely different reasons.” Therefore, in order to complete the argument in support of the

contradictory contention made here, arguments that might appear to be reasonable have to be

critiqued. A point-by-point rebuttal of every argument made in support of environmental citizen

suits is not feasible, but many of these arguments can be grouped together into relatively broad

categories. Four such categories will be considered here. First, alleged "democratic" or "mass

participation" benefits will be considered. Next, claims that "more enforcement is better" are

addressed in two separate subsections, beginning with the often-implicit claim that all

environmental statutes reflect the "public interest" and therefore should be as fully enforced as

possible. This will be followed by a discussion of the broad category of claims involving various

55 Many supporters do not appear to accept any arguments or evidence that there are problems with citizen suits, however, except perhaps that the legislative language and/or court interpretations have constrained the use of citizen suits. For a relatively small sampling of such support, see May (2003), Appel (2003), Shermer (1999), Florio (2000), Spragins (2000), Smith (1990), Longfellow (2000), Azzaro (2000), Buzbee (2001), Berger (2000), Feld (1994), Vahey (1997b), and Jeffery (2002). Also see references listed by Greve (1990: 341, notes 9 and 10). There are important criticisms of citizen suit provisions and/or private attorneys general processes. Some obviously make a number of the arguments used here, and are frequently cited in this presentation [e.g., Greve (1990), Alder (2001a), Barnett and Terrell (2001)]. Others raise criticisms that are equally important and often complementary to those made here, but they have somewhat different foci. For instance, Blomquist (1988) raises serious concerns about the impact of citizen suits on the rule of law, Abell (1995) concludes that environmental citizen suits are unconstitutional, and Rossi (1997: 178) focuses on the "negative spillover effects on another political ideal, deliberation" (1997: 178).

36

"bureaucratic failure" arguments that allegedly imply under-enforcement, such as regulatory

capture. Finally, the alleged benefits from "privatization" of enforcement will be explored.

III.1. Alleged "democratic/participation" benefits. Senator Muskie stated, during the

Senate debate on the CAA, that its citizen-suit provisions were desirable because "the bill extends

the concept of public participation to the enforcement process."56 Many citizen suit advocates

and supporters cite such "democratic values" as an "important set of benefits" (Thompson (2000:

209).57 In this regard, Thompson (2000: 210) writes:

The mere provision of a right to file citizen enforcement actions strengthens democracy. Procedure is often as important to members of the public as outcomes, particularly where outcomes are unknown or ambiguous. [note omitted] Members of the public, more particularly, place substantial value on the ability to tell their stories and express their views.[note omitted] The right to a voice in official proceedings confirms the importance of the individual and provides the individual with the status and dignity that is critical to the long-term functioning of democracy. Citizen suit provisions accord all members of the public with the central right to voice their views on the importance of environmental laws and of ensuring that those laws are obeyed. If citizen suits were not permitted, individual members of the public would be placed in a position subservient to government enforcement officials, undermining the horizontal power structure of particular value to an effective democracy. At a more concrete level, the right to file citizen suits have provided environmental nonprofits with a seat at the table they might not otherwise have had. In the 1960s, most environmental organizations were relatively marginal political players.[note omitted] The opportunity to bring enforcement actions helped give nonprofits an important power base and legitimacy. That power base ensures that environmental organizations are included today in major administrative decisions, legislative proceedings, and consensus processes. Citizen suits, in short, are in part

56 116 Congressional Record 32903 (1970). 57 The precise benefits that such claims allude to are not always clear, but Thompson (2000: 209-210) lists several, including permitting citizens to (1) choose more enforcement than the regulatory agency and override "leniency errors" by government officials, (2) experiment with alternative enforcement approaches, (3) bring before the courts their interpretation of environmental statutes that agency officials may be ignoring, thereby influencing how law is interpreted, (4) provide guidance to enforcement agencies regarding the direction of enforcement by informing officials about the harms that violations generate, and (5) "strengthen democracy". See several of the references in note 55 for variations on some of these claims. Thompson notes that most of these alleged benefits can be classified as gains in the efficiency of regulation (what he calls the "value of competition"), and in this light, the first four will be examined in the next subsection (III.2 and III.3). Perhaps the most complete and careful delineation of such potential benefits is presented by Rossi (1997), who does so in the context of an evaluation of potential tradeoffs between participation and deliberation from the perspective provided by various models of administrative law processes. He suggests that citizen suits "impair agency agenda setting at the cost of neutral analysis and accountability to democratic political processes" (Rossi 1997: 180-181). Some advocates of citizen suits simply allege that environmental groups represent majority views, but see Barnett and Terrell (2001: 31-35) for refutation of this assertion.

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responsible for the acceptance and growth of a sizable environmental nonprofit community.[note omitted] Two points will be made regarding such arguments. First, there is nothing unique about

environmental law in any of the alleged benefits in the first paragraph of the quote. In fact, this

point applies to all of the alleged justifications for environmental citizen suits: if these and/or

other claims are true, then the same arguments appear to justify widespread legislative provisions

for citizen suits to enforce all sorts of laws that currently are virtually exclusively enforced by

public agencies. Traffic violations result in thousands of fatalities every year, for instance. Why

should groups like MADD not be allowed to file citizen suits against drunk drivers when police

or prosecutors decide to let them off? Violent crimes also result in large numbers of deaths as

well as numerous costly injuries, while property crime creates tremendous losses for citizens

every year as does fraud. Why not allow citizen suits, in order to increase enforcement and

generate all of these "democratic values." Victims groups may gain " with a seat at the table they

might not otherwise have". Political corruption should be a major concern in a democracy, as it

undermines the legitimacy of government, so citizen suits clearly should allowed, given that they

generate greater democratic values that might offset the corruption effect while also reducing

corruption. And what about tax law? Clearly limited IRS resources prevent the agency from

auditing and prosecuting many people who underpay their taxes, thus limiting the ability of

government to provide benefits (including law enforcement) to citizens. Would citizen

prosecution of tax law violations not generate more compliance as well as the democratic benefits

listed above? Violations of laws regarding employee and consumer safety presumably lead to

large numbers of deaths and injury, and many people argue that underage drinking, drug use,

gambling, pornography, prostitution and other vices cause tremendous social misery. Would

citizen suits not generate the same benefits in these areas as they do under environmental laws?

Business and professional licensing, building codes, patent law, financial regulations, and many

other laws passed for alleged public benefits and enforced by government also presumably could

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be enforced through citizen suits. Why should citizens who are concerned about the environment

have access to citizen suits while citizens concerned about most other areas of law enforcement

do not?58 This appears to be a very undemocratic allocation of "participation" privileges. On the

other hand, if citizen suits do not generate democratic (and other) benefits in these areas of law,

perhaps they do not under the environmental laws either? This brings us to the second point to be

made.

Environmental citizen suits actually do not produce the kinds of democratic (or other)

benefits that their supports claim they do. This should not be surprising. After all, providing

special privileges to one segment of the population while others are unable to obtain them is

actually counter to the democratic process. The rhetorical use of "citizen suit" to describe the

private-attorney-general process is very misleading, even in the confines of environmental law, as

it implies that the privilege is granted to all citizens concerned with environmental enforcement.

In reality, as Greve (1990: 370) explains, "this has never been so, and it cannot be so." Most

private attorneys general activities under the federal environmental statutes will always be

pursued by well organized, professional advocacy and litigation groups, because they already

have born the transactions costs that other citizens have not, so they control the resources and

expertise needed to reduce search, detection and legal costs. Ordinary private citizens generally

cannot pursue citizen suites because they do not command the kind of resources and expertise

needed for such actions. Greve (1990: 370) goes on to note that "The dominant role of

environment organizations in private enforcement is not a problem in and of itself… It does,

however, call into question the presumptive rationale behind the "private" citizen suit model."59

Indeed, the second paragraph of the Thompson (2000: 210) quote correctly notes that citizen suits

58 Citizen suits are also authorized under some civil rights laws, and as noted below, private attorneys general operate in tort law through the use of class actions and other mass tort consolidations. 59 Greve (1990: 370-373) makes this point to counter the claim made by political supporters of citizen suit provisions, that such suits would be employed "concerned citizens" to seek remedies for environmental problems in their local areas that the EPA is likely to be unaware of or unwilling to enforce. This is one of

39

give environmental groups more political power, but other individuals and groups who may also

be vitally concerned with environmental enforcement, or with other issues that might compete for

budget, do not have access to the same power or influence.

Business organizations have been denied standing in citizen suits, for instance, as noted

above. Of course, another justification for citizen suits is that business interests would dominate

environmental regulation in the absence of citizen suits. Such "capture" arguments are discussed

in section III.2, but for now, note that there are groups in the U.S. whose memberships feel that

enforcement of environmental regulations generate greater harms than benefits (e.g., by severely

limiting economic growth, by undermining private property rights), and they are not made up of

industrial polluters. Furthermore, as Guana (1998: 6) notes, "Environmental groups … [take]

advantage of private citizen suit provisions to force agency action and enforce environmental

laws.[note omitted] These efforts, supported by extensive economic and political resources, have

rendered national environmental organizations influential players and have significantly

facilitated the widespread assumption that they are the sole expression of popular environmental

sentiment." The environmental justice movement often opposes the traditional environmental

advocacy groups. This movement contends that these national environmental organizations

neglect the distributional consequences of environmental regulations and enforcement by

providing benefits for the relatively wealthy while imposing greater risks on the poor and/or

racial minorities, because the current process fails to include "communities bearing the greatest

environmental risks" (Gauna 1998: 5). Given the added power and influence that citizen suit

privileges give to national environmental groups, this undemocratic political imbalance may

actually be more significant because of citizen suit legislation.

An even more fundamental point can be made about the alleged democratic benefits of

citizen suits. Essentially, the statutory power to act as private attorneys general gives those

the "democratic values" alluded to by Thompson, but Greve's argument has much more far reaching implications.

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individuals and groups who have the time and resources available to pursue prosecutions, the

ability to divert (or threaten to divert) environmental enforcement out of legislative/bureaucratic

arena into the federal courts. But federal judges are relatively immune from political influence

compared to Congress and EPA bureaucrats. Thus, citizen suits that actually proceed to trial

move enforcement decisions out of a decision-making setting that is relatively more likely to

represent the demands of politically active individuals and groups into an arena that is less likely

to do so. Federal judges are not totally immune from political influence, of course, particularly if

they aspire to appointments to higher courts, but most citizen suits actually never go to trial.

Therefore, in reality, citizen suits move most decisions out of the hands of the relatively public

arena of regulation, which is at least subject to congressional and interest-group oversight, into

private and totally non-democratic negotiations. For most citizen suits, the only parties whose

interests are represented are the accused law violator and the group represented by the private

attorney general, with the threat of ongoing litigation giving considerably more bargaining power,

and therefore, weight, to the interests of the prosecuting group. Since environmental groups and

alleged violators are also able to present their views within the political and regulatory process, as

along with other interested parties, this shift of decision making into a private bargain is likely to

reduce representative democratic forces while increasing the bargaining power of the

environmental-interest-group prosecutors.

III.2. Are Environmental Laws and Their Enforcement in the "Public Interest"?

As Adler (2001a: 42) reminds us, for the most part, environmental regulations are

supposedly intended to address "market failures" in the form of "negative externalities." That is,

environmental harms (or costs) are born by (imposed on) people other than the person making a

decision to take some action that generates such costs. Therefore, the decision-maker, in

weighing expected costs and benefits, does not consider (or internalize) those external costs, and

the true (or social) costs of the action exceed the benefits. Regulation presumably will force the

decision-maker to recognize and consider such costs. Mises (1949: 692) explains, however, that

41

market-failure justifications for state actions "ascribe to the state not only the best intentions but

also omniscience." He then points out that neither assumption is valid. Government is not

necessarily benevolent since both those who are employed by the state and those who demand

state actions have subjective views of the "public interest" (e.g., their views of the public interest

may be colored by their own self-interests). As Guana (1998: 24) states, for instance, "Experts

increasingly recognize that even technical and scientific solutions to environmental problems

involve value judgements.60 The desired level of environmental protection61 and corresponding

strategies employed to achieve these desired levels62 are recognized as questions which are

inherently political as well as technical" (Gauna 1998: 24)

Government also is not all knowing since knowledge is widely dispersed and the cost of

coordination is infinitely high, particularly without market profits and prices as coordinating

mechanisms. Furthermore, Mises suggests that dropping either assumption undermines the

conclusions that state intervention is necessarily desirable even if some sort of market failure is

actually identified. Relaxing them both implies that regulations provide benefits for "special

interests" who are able to influence the political process by imposing costs on individuals who

have less political power (Benson 2002, 2004).

The claim that government actions reflect responses to the demands of politically active

pressure (or interest) groups is not new. Indeed, the political nature of, and interest group influence

on law and regulation have been recognized by many who have examined it.63 Since laws and

60 In support of this claim, Guana (1998: 24) cites Hornstein (1992) who discusses literature on the "hidden values in asserted neutral application of scientific criteria" as well as other references. 61 Guana (1998: 24) cites Nazar's (1994) discussion of the politicized determination of the national ambient air standard for ozone under the CAA. 62 Guana (1998: 24) cites several references in the "ongoing debate about the relative merits of different control strategies." 63 Special interest or pressure group theories of government come from such diverse philosophical/theoretical views as classical-liberalism/libertarianism (see for example, Buchanan and Tullock (1962), Tullock (1967) Benson (1990, 2002, 2004)), modern liberalism (see for example, Nader (1970: ix), Reasons and Kuykendall (1972: 1-2), Sikes (1975: 119)) and Marxism (see for example, Quinney (1969)). In addition, Eisenstein (1973: 9-10) explains that the special interest view of government is very compatible with the "legal realist" view of law.

42

regulations influence the distribution of wealth, rational individuals look for opportunities to gain

subjective well being through political processes. Furthermore, individual voters and elected or

appointed public officials face very high information costs, so they often cannot differentiate

between true and false "public interest" claims. Therefore, even if public officials are benevolent

themselves (or if they feel that it is necessary to provide "public-interest" rhetoric to justify their

actions), it becomes rational to cloak self-interest demands in public-interest rhetoric. In fact,

however, government officials are also rational and self-interested, and those individuals have

opportunities to pursue their own objectives due to the knowledge problem facing the rest of the

population who will not be able to monitor them.

A useful framework to begin considering some of the implications of this view of

legislation and resulting regulation is developed by Stigler (1971), who describes government

regulation as a supply and demand process with interest groups on the demand side and

legislative representatives (and their political parties) on the supply side. In particular, Stigler

(1971) contends that interest groups demand wealth transfers from their political representatives.

The assumption that the object of interest group demand is a transfer of wealth might be

somewhat misleading if it is interpreted to imply that individuals become involved in interest

group activities only if they can gain (or avoid losing) monetary or physical wealth. Clearly this

is not the case. In fact, while potential self-interest motives can often be identified for groups

seeking changes in laws and regulations, many members of the relevant groups firmly believe

that the changes they demand are in the public interest. Of course, the "public interest" is totally

a normative concept -- it is what each individual subjectively believes it to be, and such beliefs

may well be endogenous as individuals rationalize their self interests (Ikeda 1997: 110-117,

Benson 2004). Of course, if "wealth" is more broadly defined to mean well-being or satisfaction,

as most economists such as Stigler would, then there is little cause for confusion, but then the

43

model can lose considerable predictive power as testable hypotheses are not readily apparent.64

Therefore, rather than focusing or wealth (or rents, as in the complementary "rent-seeking"

literature (Tollison 1982)), let us define the object of exchange as a) the assignment of property

rights, and b) enforcement of property rights assignment (Benson 1984, Eggertsson 1990).

Property rights "convey the right to benefit or harm oneself or others" (Demsetz 1967: 348), after

all, so they dictate the distribution of wealth (and rents). Indeed, changes in property rights

destroy some rents and create others, and therefore, transfer wealth. Whenever an interest group

is successful in altering the assignment of property rights, other individuals lose. Thus, political

competition is likely even if some groups are not seeking monetary or physically measurable

wealth or rents, because their successes impose costs on others. As a result, the model clearly

applies to members of groups like the Sierra Club and the NRDC who may not think that they

obtain any personal gain (wealth, rents) from their political activities (even though they do gain

subjective value).65 Such groups clearly are attempting to influence the allocation and

enforcement of property rights, so if their demands are met, other people are likely to lose wealth.

Indeed, over four decades ago Turvey (1963) pointed out that the imposition of costs of pollution

control on polluters only deals with part of the problem. He explained that if those who place

high value on environmental quality (e.g., those who join environmental advocacy groups) do not

have to pay for improvements then they will demand ever stricter controls (i.e., once a particular

target is achieved, there will be demand for an new stricter target). This is a basic economic

principle, of course: when the price that demanders pay is low the quantity demanded is greater

than it is when the price is higher, and when the price is zero the quantity demanded is as great it

64 The rent-seeking approach (Tullock 1967; Krueger 1974) suffers in a similar way. Rents are returns to the use of unique assets (real resources such as fertile land, advantageous locations, personal skills, or artificially created assets such as licenses, franchises, or legally defined markets), but some interest groups do not appear to capture any "economic returns." Again, if these rents are considered more broadly to include gains in well-being or satisfaction then the concept might be applied to such groups, but the model then loses predictive power. 65 This property rights perspective has advantages beyond clarifying the consequences of actions taken for the benefit of successful interest groups (Benson 2002, 2004).

44

can be given the preferences of demanders, regardless of what it might cost to provide the good or

service. This gives the likely losers (e.g., those who must pay the cost of providing greater

environmental quality) incentives to take political actions too, of course. In general then,

government governs by assigning and enforcing rights, and by more or less continuously

modifying and changing them in the face of increasing quantities demanded by existing groups

and changing numbers of interest groups with different demands (Benson 1984).

Interest groups dominate in the political process over individuals because of the cost of

information. Voting for legislative representatives (who pass laws) is infrequent, for instance, and

usually concerned with a package of issues. Thus, individuals must incur costs to inform

themselves about particular issues and politicians. This investment is not worthwhile unless the

expected gains are relatively large. Consequently, individuals with potential but small per capita

gains or losses through political action will not have a significant incentive to obtain the

information - they are rationally ignorant. As Friedman (1973: 180-181) suggests, for example,

Imagine buying cars the way we buy governments. Ten thousand people would get together and agree to vote, each for the car he preferred. Whichever car won each of the ten thousand would have to buy it. It would not pay any of us to make any serious effort to find out which car was best; whatever I decide, my car is being picked for me by the other members of the group. Under such institutions the quality of cars would quickly decline.

That is how I must buy products on the political marketplace. I not only cannot compare alternative products, it would not be worth my while to do so even if I could. This may have something to do with the quality of the goods sold on that market. Caveat emptor.

The problem goes well beyond what Friedman's example suggests, however. Voters do not

choose individual products like cars. They generally vote for a political candidate offering to

advocate a bundle of "services" (property rights allocations, levels of enforcement, transfers,

rents) some of which may be desirable for a particular voter while others are not. To make a

"good" decision (i.e., obtain enough information to actually vote for the candidate that is most

likely to advocate the policy bundle closest to the voter's preferred bundle), the voter would have

45

to determine what each candidate is actually offering (not an easy task given the obfuscation that

politicians often practice in an effort to keep voters from finding out about the costs they are

likely to bear if the candidate is elected), weigh the attractive parts of each candidate's offered

bundle against the unsatisfactory parts, and then compare these weighted bundle of costs and

benefits. If the voter makes the considerable investment in time and effort that this would take,

there still is no guarantee that the preferred candidate will win or that if she wins she will be able

to achieve the goals she promises to advocate, or that she will even advocate the promised

policies. Thus, the expected benefits of making a "good" decision are very low. The costs to a

voter of making a "bad" decision (e.g., voting for a candidate that is actually least likely to

advocate the voter's preferred bundle of policies, given the candidate field available) are also very

low. After all, the chances that the vote will be decisive are infinitesimal. The candidate may

well lose, and if she does win, the chances that she will be able to get the voter's desired set of

policies implemented are also low. Furthermore if the candidate who gets a vote due to an

"uninformed" decision wins, the uniformed voter will bear only a small part of the costs of the

bad decision. The costs are shared by widely dispersed voters and non-voters. Thus, voters are

rarely if ever informed about the candidates' full platform. Instead, those individuals who expect

that large personal benefits can be gained (or losses can be avoided) from a particular political

decision have incentives to obtain information about potential candidates' views on that decision,

and then attempt to influence those views, both before and after the election.

In order to influence legislation, individuals generally must organize with other like-

minded individuals, in part because the expression of interests (demands) requires the

mobilization of votes and/or money in order to be able to offer something of value to politicians

in exchange for favorable legislation, as explained below. Creating such organizations is costly.

Posner (1974) notes that there are two major costs of organizing:1) the cost of arriving at an

agreement, and 2) the cost of enforcing an agreement. Individuals who are potential members of

an interest group view the cost of organizing as an investment. Individuals are likely to make this

46

investment if they do not have alternative investments that are more attractive. That is, the

expected net per capita gain from participation in interest group activities will be compared to

other investments by individuals. Given that some individuals agree on objectives and strategies,

however, each similarly-interested individual has an incentive to avoid paying a full share, either

monetarily or in terms of time. Such organizations can fail to form, or break down once formed,

because of the free rider problem (Posner 1974: 344-345). The free rider problem explains the

observation that small groups may be relatively effective in obtaining regulatory benefits while

large groups may not be less effective. It is easier to organize an effective interest group and

disperse the costs if the group is small: all will tend to participate, knowing that any defection is

likely to be followed promptly by the defection of the remaining members of the group, leaving

the original defector worse off than if he had cooperated" (Posner 1974: 345). The cost of

arriving at an agreement also tends to be less when the potential interest group has homogeneity

of interests. The group can arrive at a common position more easily than a potential group of

similar size but with heterogeneous interests. Thus, relatively small groups with very narrow

focuses (single interests) are often successful.66

If a large group can overcome the cost of organization, they should be very effective, of

course, as they will be able to offer both votes and money, as explained below. In this context,

Stigler (1974) also argues that a large group of individuals may be effectively represented by one

or a few individuals with especially strong interests. Essentially, Stigler recognizes that there is a

role for political entrepreneurs who recognize opportunities for potential gains from regulation,

and even in the face of freeriders, such individuals will represent a larger group's interests in

66 Because of these points, Stigler (1971) concludes contends that when a particular industry is regulated, the firms in the regulated industry tend to benefit rather than the customers of those firms, and he cites very convincing evidence in support of this expectation (e.g., the fact that most industry-specific regulation tends to define markets and prevent competition, limit entry through licensing restrictions and other means, and/or set minimum rather than maximum prices). This is one basis for a "capture theory" of regulation, but there are others. See note 68, as well as Section III.3.

47

order to influence the allocation of property rights.67 And indeed, claims by an interest-group

spokesman that the group represents a much larger constituency than their membership roles

imply certainly can be true,68 given free rider incentives, but this does not mean that the will not

be effectively represented if some individuals have sufficient interests to bear the costs of

political entrepreneurship. Effective political entrepreneurs can find sources of support other than

membership numbers (dues, votes) to offset such free-rider incentives. Environmental interest

groups get an estimated one third of their budgets from foundation grants rather than membership

dues, for instance, and they also raise substantial funding from litigation fees and settlements, as

noted above, and from government grants, leading Zywicki (2002: 346) to conclude that "it is

easy to overstate the public support for these organizations.

The Stigler (1971, 1974) model assumes that the suppliers of regulation are elected

legislators, and Peltzman (1976) provides a formal model of Stigler's (1971) theory of regulation

by assuming a competitive process for individuals seeking to be legislators, which in turn implies

that the decisions made by these politicians can be predicted by viewing them as majority

maximizers (i.e., rather than seeking profit as in the market process). After all, a non-vote

maximizing strategy leave open the possibility that a competitor can offer a different bundle of

political actions that will win the next election. In this context, Posner (1974: 347) notes that

there are three bases for interest groups' political influence, and therefore, for successfully

obtaining wealth transfers. A group can exchange: 1) the votes of the members of the interest

group; 2) monetary payments (e.g., campaign contributions) that can be used to influence other

voters, and/or 3) a promise not to disrupt the political equilibrium by using its ability to retaliate

67 In fact, of course, it is likely that an entrepreneurial effort is required to form any interest group, whether large or small. Some individual will probably have to take the lead, persuading others to join. 68 Such claims are common among environmental advocates who see regulatory policy as a political competition between "industry" and the public at large. For instance, Elliot, et al. (1985: 322) contends that "Individual citizens who wish to breathe clean are a classic example of a large, disorganized population seeking a collective good which will benefit each individual by only a small amount" while the companies that should be regulated are relatively small in number, have large stakes in the characteristics of the regulation that is produced, already organized in various industrial and trade groups, and less subject to free

48

with political opposition, or with some sort of violence, disorder, work stoppage, or grumbling

that could reduce the legislator's voter support. Willingness to pay in one or all of these

"currencies" creates the signals of relative interest-group demands that politicians respond to.

Assuming that these signals are accurately read, Peltzman's model concludes that: 1) the

legislature will favor the most politically powerful interest groups (the groups that can deliver the

most votes, either directly from members or indirectly through campaign contributions, etc.); 2)

more than one organization may be favored at the expense of others (e.g., a utility commission

may favor existing utility firms by preventing entry, assigning geographic markets to prevent

competition, and establishing legal minimum prices, but require those firms to set relatively low

prices for select groups of consumers who have political influence, provide higher wages or other

benefits to unionized labor, etc.), so alliances between different groups are likely to form in order

to shape legislation in ways that will achieve multiple objectives; 3) when there are differences

between members of an interest group, the benefits (or costs) to the members which result from a

particular legislative transfer will differ between members; and 4) the favored interest group

(groups) will not be favored to the extent that it (they) could be. The last three points mean that a

legislature never acts as a perfect broker for a single interest group. The reason for this is that the

"marginal political return of a transfer must equal the marginal political cost" in order for a

legislator to maximize his majority (Peltzman 1976: 217).

Environmental regulation is often characterized as an outcome of political competition

between "industry" ("polluters") and the public at large (those who suffer from pollution) (e.g.,

Elliot, et al. 1985, Esty 1996; Swire 1996). This representation of the political competition is

very misleading (Zwyicki 1999: 856), however, in part because "industry" is not a homogeneous

group at all. In addition, this view fails to recognize that many policy options are available within

the broad area of environmental regulation. Some regulatory policies can provide benefits for

riding. Thus, industry is expected to be over-represented in legislative decisions, and to capture the regulatory process, as suggested in note 66.

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some firms, so those firms are not likely to oppose such policies, and they may even lobby for

them. Within a particular industry, for instance, firms compete with one another, both in markets

and through the political process. If one firm or a group of firms can gain an advantage over

competitors by influencing environmental regulation, then the "industry" itself will not have

common interests. Indeed, as Maloney and McCormick (1982: 99-100) explain, in many

situations "the interests of environmentalists and [some] producers may coincide against the

welfare of consumers [and of potential producers who might want to compete with existing

firms], because both may profit from output reductions." For success, a cartel must limit output

to raise price, and limit entry, for example, so if a group of firms can influence the characteristics

of environmental regulations in a way that limits output and entry, then these regulations serve as

a cartelization device (Buchanan and Tullock 1975, Maloney and McCormick 1982). Thus, for

instance, the 1970 CAA imposed standards on existing firms that differed from standards required

of entering firms. Existing firm standards were based on ambient air quality, but new firms had

to meet stricter standards, regardless of air quality. On top of this, ambient air standards are

stricter in regions with relatively clean air, making entry in those areas even more costly. In this

way, industrial and union interests in northern states benefit from relatively strict environmental

standards in the South and West that prevent entry of competitors and unions also benefit by

limiting the migration of industry to these regions where labor costs are lower (Maloney and

McCormick 1982: 101). Indeed, "Entry restrictions seem to pervade ever aspect of this

regulatory process" (Maloney and McCormick 1982: 101).69

Coalitions between environmental groups and a group or groups of producers are

common. Consider Ackerman and Hassler's (1981) careful and thorough study of the politics of

69 Maloney and McCormick (1982) provide empirical evidence of the value-enhancing consequences of environmental regulations for existing firms using stock market event analysis. Also see Pashigian (1985), who examined congressional voting on the 1977 CAA amendments setting stricter standards in regions with relatively clean air, and found that congressional representatives from older industrial regions systematically supported stricter pollution standards for regions that were attracting new industrial plants

50

the 1977 Amendments to the CAA.70 The 1970 CAA resulted in sulfur dioxide emission

standards for all coal-fired plants, but there were a number of ways that the standard could be

met. One way was to use coal mined in the Western part of the U.S. which has much lower sulfur

content than Eastern coal. Another way was to install costly scrubbers and use Eastern coal.

Such scrubbers were so expensive at the time, however, that many Midwestern firms found it

more cost effective to meet the standards by paying to have huge quantities of Western coal

transported to their locations. Eastern coal lost its locational advantage in competing for the

Midwestern market. Ackerman and Hassler (1981) explain that this lead the Eastern coal

producers, both firms and unions, to change their lobbying tactics. Instead of campaigning for

weaker sulfur dioxide standards, they joined with environmental groups to demand that coal

plants should meet both an emission standard and a technology standard. The 1977 CAA

amendment established new-force-performance standards (NSPS) forcing all facilities to achieve

percentage reduction in emissions, even if they were using clean-burning Western coal.

Scrubbers would have to be installed in order to further reduce emissions, and all new facilities

were forced to adopt scrubbers. Once scrubbers were installed, it became cheaper to avoid the

transport costs associated with Western coal. The Eastern coal producers were, once again, in a

position to dominate the Midwestern market, even though over time the sulfur emissions, even

with scrubbers, would be higher than they would be with Western coal. As Adler (2000: 8) notes,

"By imposing scrubber requirements on all new coal plants, Congress made older plants more

cost-effective by comparison, delaying the environmental gains that would be achieved by a

switch to more modern, less polluting facilities. As a result, some regions of the country actually

saw an increase in sulfur dioxide emissions as a result of the new law, and the amount of scrubber

sludge requiring disposal increased substantially." Maloney and Brady (1988) provide empirical

that would compete with the older plants in their districts, in response to the demands of unions and older-plant owners.

51

support for this conclusion, showing that there was a significant slowdown in capital turnover in

the electric generating industry after the amendment, and that the stricter new source standards

actually increased the level of air pollution created by the industry. Furthermore, the high cost of

scrubbers meant that consumers would have to pay more for the goods (e.g., electricity) produced

by burning coal.

In exchange for the support of the Eastern Coal producers and United Mine Workers in

pursuit of the CAA emission standards in the 1977 amendments, the Sierra Club and the Nation

Clear Air Coalition helped pressure for Section 125: "Measures to Prevent Economic Disruption

or Unemployment." Under Section 125, federal and state regulators had the power to order

electric generating plants to use only coal produced within the region if importing coal from

elsewhere could take jobs away from local mine workers. Even though Senator Muskie stated, in

the Senate debate, that "The dominant thrust of this amendment is not its relationship to clean air,

but its relationship to the economics of the areas it is designed to protect", the amendment

passed.71 In fact, Morriss' (2000: 265) detailed examination of the political underpinnings of the

CAA, concludes that the public interest explanation (or "social guardian story" as he calls it) of

air pollution policy "is unsatisfactory because it concentrates only on the regulatory aspects [i.e.,

the coercive imposition of standards on individuals and firms], which, although prominent in the

public debated over the strictness of air pollution controls, pale in significance when compared

with the redistributive and distributive aspects. Indeed, the massive complexity of the Clean Air

Act is not due to the difficulties of resolving technical problems of pollution control. The

70 For a short discussion of Ackerman and Hassler (1981), see Adler (2000: 6-8), and for a concurring discussion in the context of a detailed analysis of the political history of the CAA and its various amendments, see Morriss (2000). 71 Adler (2000: 8-9) explains that addition "regional rent-seeking" helped shape the 1977 CAA. See Pashigian (1985) in this regard, as suggested in note 64. A similar study of congressional voting by Meyer and Yandle (1987) regarding the acid rain amendments to the CAA also found evidence of congressional votes influenced by the demands of local industry, as well as some concern with environmental issues, leading Yandle (2000: 50) to conclude that the results are consistent with Peltzman's (1976) theory. Similarly, Hird (1993) examined a series of votes on the 1980 Superfund legislation and its 1986 amendment and found that votes were strongly and positively influenced by environmental group

52

complexity seems to exist to hide special favors for regions and industries with powerful

legislative advocates, such as West Virginia's high sulfur coal region and Detroit's auto

manufacturers."

As suggested above, the benefits of restrictions on entry and competition do not just

accrue to firms. As revenues rise for these firms, unions are often in a position to bargain for

higher wages and greater benefits (Yandle 1983b: 105-107; 1985: 431-33). Costs of regulatory

compliance rise for the protected firms too, of course, but as long as the revenues rise more

because of the restrictions on competition, unions have incentives to support stronger

enforcement standards. The revenue increase are a result of reduced output relative to what it

would be with more competition, of course, so while existing unionized workers often benefit,

other workers (e.g., those who would have been employed by new entrants in other regions)

suffer. Unions also benefit because of the reduced mobility of firms due to differential regulatory

standards across regions (Yandle 1983b: 108-109).

Such regulations also have differential impacts across firms within regions. For instance,

technological requirements to install capital intensive devises such as scrubbers often cost

roughly the same regardless of the size of the plant. Therefore, large firms/plants gain cost

advantages over small firms/plants (Brock and Evans 1986: 167-177; Pashigian 1984: 4-5;

Pittman 1981: 1, 13). Similar impacts arise from the compliance costs (e.g., record keeping,

reporting, legal costs arising in litigation, insurance or self insurance costs) associated with

environmental regulations (Brock and Evans 1986: 167-177; Birnbaum 1985: 135-138; Pashigian

1982; Yandle 1989a: 751, 761).72

membership within a congressional district but negatively influenced by petroleum and chemical industry within the area (environmental group impacts were by far the strongest in this study). 72 Large firms also can use the enforcement of environmental regulations to gain advantages over smaller competitors (Zywicki 1999: 873-874). For instance, Yandle (1997: 74) explains how Weyerheuser, the lumber giant that owns large tracts of timber land, employed wildlife biologists to look for spotted owls on federal forest lands. Logging was outlawed on over five million acres of federal land to protect spotted owl habitat (along with substantial tracts of private timber land, including 320,000 acres owned by Wyerheuser) prices of lumber shot up, and according to the Wall Street Journal article quoted by Yandle (1997: 74), "owl-driven profits enable the company [Weyerheuser] to earn $86.6 million in the first quarter [of 1992],

53

Numerous other examples non-environmental of interest groups joining with or taking

advantage of the demands for environmental regulation in pursuit of obvious private interests can

be cited.73 Adler (2000: 9-13, 14-16) and Zwyicki (1999: 857-860) both discusse the efforts of

the ethanol lobby, lead by Archer Daniels Midland, to increase the required demand for their

product, for instance, as well as the hazardous waste treatment firms discussed above, who have

pursued both citizen suits and legislation in order to increase their business. Adler lists several

other examples as well (2000, 3-4), and concludes that "The list can go on and on, for painting

special interest policies green makes them easier to enact, irrespective of whether they further

environmental protection." Indeed, as Yandle (2000: 47) points out,74

Almost systematically it seems, two [or more] interest groups emerge together, calling for the same outcome when environmental rules are being constructed. Notice the focus on the construction of the rules, not the urge to write rules in the first place. These two groups always include some economic interest groups - such as certain manufacturers, labor unions or trade associations - and environmental organizations. One group takes a publicly perceived high road calling for a better life. The other takes the low, looking for improved profits and wealth…. We can see how the blending of disparate voices to form harmonious support of command-and-control regulation makes it easier for politicians to trade off efficiency for future political support.75

up 81 % from a year earlier." Within three years, federal protection of the spotted owl had roughly doubled the value of Weyerheurser's private timber lands, as corporate profits were up over 43 percent (Oesterle 1996: 526). At the same time that Weyerheurser and other large timber firms that owned substantial tracts of private forest lands were enjoying tremendous benefits, many small timber firms that depended on logs from federal lands were forced out of business. Thus, the large firms benefited both because their private lands became much more valuable and substantial numbers of small competitors disappeared. People who buy houses are also harmed, of course, as the price of housing also rose. Oesterle (1996: 530) estimates that the restrictions increased the price of a $100,000 house by about $300. 73 See references in note 71. 74 The point made here, that groups in obvious pursuit of self interests often ally themselves (either openly, or behind the scenes with funding support, etc.) with "public interest" groups such as national environmental organizations, was first made by Yandle (1983a) in the context of an examination of alcohol regulations in the South, where Baptists opposing Sunday liquor sales were supported in their political efforts by bootleggers who expected to increase their own sales as restrictions were imposed on legal distribution. Since this seminal paper was published, the same kind of relationship has been discovered in a wide array of regulatory arenas, including environmental regulation. See, for instance, Yandle (1989, 1997: 68-79), Zywicki (1999: 857-874). 75 In the context of this quote, environmental organizations presumably make up the group that takes the "high road calling for a better life", but even this is not necessarily true, as suggested by the "publicly perceived" phrase in the quote as well as the discussion of their use of citizen suits to extort revenues. In addition, Zywicki (2002) offers a test of public interest versus private interest models of environmental interest groups themselves. He focuses on three implications of a public-interest model: "(1) a desire to base policy on the best-available science; (2) a willingness to engage in deliberation and compromise to balance environmental protection against other compelling social and economic interests; and , (3) a willingness to consider alternative regulatory strategies that can deliver environmental protection at

54

While some argue that the competition and compromise process of interest group politics leads to

efficient political actions,76 the fact noted above is that there are many ways to pursue

environmental improvements, and there is a growing realization in the economic and legal

literature that there are better (e.g., more efficient and more equitable) ways to achieve similar or

even greater improvements.77

Inefficient policies can survive in part because of the focus on reelection by politicians

and the rational ignorance of voters, which together mean that political decisions made by elected

officials tend to based on limited time horizons (Lee and Buchanan 1982, Benson and Johnson

1986). Politicians have little motivation to consider consequences much beyond their next

lower0cost than traditional command and control regulation" (Zywicki 2002: 315). He concludes that the public-interest explanation for the activities of environmental groups "fails to convincingly describe their behavior" with regard to all three hypotheses, while their behavior is consistent with a self-interested model: "Their activities can be understood as being identical to those of any other interest group - namely, the desire to use the coercive power of government to subsidize their personal desires for greater environmental protection and to redistribute wealth and power to themselves" (Zywicki 2002: 315-316). 76 One claim is that, given equal access to political decision makers, the demands of each interest group concerned with a particular issue will be proportional to the importance that each group places on particular outcomes. Politicians, weighing these various demands, will efficiently distribute the benefits of policy decisions and implementation (e.g., Downs 1957: 36-38; Shapiro 1988: 5-8, 14; Dahl 1967; Truman 1953). A related literature builds on Stigler (1971). Peltzman's (1976) formal model suggests that since legislators wish to meet the marginal conditions of the political exchange, so this transfer process should efficiently accomplish what it is designed to do. As Posner (1974: 217) explains, "A corollary of the economic theory of regulation is that the regulatory process can be expected to operate with reasonable efficiency to achieve its ends. The ends are the product of a struggle between interest groups, but . . . it would be contrary to the usual assumptions of economics to argue that wasteful or inappropriate means would be chosen to achieve those ends." Thus, this version of the interest group theory of government implies that legislators attempt to efficiently transfer wealth -- i.e., minimize the deadweight losses arising with transfers (Becker 1983). After all, if a particular regulatory arrangement is inefficient in the sense that transactions costs are not minimized, politicians who established it will have less political support than they could obtain by reducing those costs. Therefore, they will make adjustments in order to maximize their support (if they do not, competitors will offer a better arrangement and gain enough political support to win the next election). Thus, the argument continues, any regulatory arrangement that survives over time must be efficient in this sense (Stigler 1992; Whitman 1989). This political efficiency desired by legislators is not equivalent to static equilibrium allocative efficiency, of course. It can be thought of as a "second best" kind of efficiency -- given the existence of a political process with the power to alter property rights and transfer wealth, Pareto optimality is impossible, but the legislature attempts to efficiently meet desires that are in the interests of small powerful groups with a minimum of costs imposed on political losers (Benson 2004). A number of additional factors discussed in Benson (2004) suggest that even this second best efficiency is not likely to characterize regulation, however. 77 The relevant literature is voluminous, so it cannot be cited in its entirety. However, for examples, see Adler (2002), Stewart (2001), Meiners and Yandle (1999), Morriss, et al. (2004), Hylton (2002), Cane (2002), Potts (1999), Yandle and Morriss (2001), Boudreaux and Yandle (2002), Anderson and Leal (1991), and several of the other references cited in this presentation.

55

reelection efforts. As Lee and Buchanan (1982: 354) conclude, because decisions by elected

officials are made on the basis of time horizons shorter that the period required for full adjustment

to changes, policies [e.g., taxes, regulations]will involve higher costs "than those that a far-

seeking or 'enlightened' government would impose." Thus, for instance, as Gauna (1998: 4) notes,

"reports invoking visions of impending disaster create intense collective anxiety, assuaged only

by seemingly 'tough' legislation.78 While heated public indignation can affect environmental

protection in extraordinary ways,79 it is usually short lived… After public outrage dissipates,

environmental agencies are left to translate broad [note referring to Glicksman and Schroeder

1991: 253)] and ambiguous mandates into hyper-technical regulations and to apply the

regulations to discrete actions." Elected officials who pass statutes that establish "broad and

ambiguous mandates," often requiring outcomes that are actually impossible to achieve, obtain

short-term reelection advantage over opponents who contend that the regulations are impossible

to meet and/or that they are more costly to achieve than they are worth. In this regard, for

instance, many of the environmental statutes establish objectives that are technically impossible

to achieve, or that would cost so much to achieve that the economy would be devastated. For

instance, the CWA called for fishable and swimmable water by 1983 and zero discharge of

pollutants anywhere by 1985, and this provision was even included in the 1987 revised act (Greve

1990:378, citing 33 U.S.C. § 1251(a) (1988)). Laws like this are demagogic (Melnick 1984),

generally counterproductive (Aman 1988: 1135-1136), and impossible to complied with, of

course. Adler (2001a: 46) cites a survey of corporate counsels reported in Lavelle (1993: S1), for

instance, wherein only 30 percent of the respondents believed that it was possible for the firms

78 Guana (1998: 4) cites Farber (1992) who explains how environmental demands are translated into legislation even though there may be free rider and other organizational problems faced by environmental groups, as well Glicksman and Schroeder (1991) and several other references. Often the "reports invoking visions of impending disaster" are also misleadingly presented (Adler 2002, Zwyicki 2002). 79 Guana (1998: 4) references Dwyer (1990), Farber (1992), and others, including Wagner (1995: 1653) who explained that regulatory goals are inconsistent so "the only way to pacify the public and ensure political survival is to conceal the underlying social compromise between protection of public health and the loss of jobs under the veneer of scientific truth." Also see Zywicki (1999, 2002).

56

they represented to fully comply with state and federal environmental laws and regulations. As

Greve (1990: 379) notes, when actual environmental enforcement is compared to the goals stated

in such statutes, "underenforcement is indeed rampant. But this line of argument has a strangely

disembodied character in as much as it 'determines' the adequate level of enforcement without

reference to anything in the real world, including economic costs and even environmental

quality." Clearly, for instance, the CWA ignores the issue of the actual link between discharge

and water quality (Greve 1990: 379), as excellent water quality does not require elimination of all

discharge. Not surprisingly, the technologically based regulatory standards established under to

CWA also are at best, inconsistently and haphazardly related to water quality. As Pedersen (1988:

72) concludes, even at the level enforcement that exists, this act has produced an The result is an

“economically inefficient control scheme with no regulatory link to the problems it purports to

regulate.” Indeed, the Courts have recognized the unrealistic mandates set by Congress. In

Natural Resource Defense Council, Inc. v EPA (824 F.2d 1146, 1154 (D. C. Cir. 1987)), for

example, the opinion stated that attempting to deliver perfect safety (e.g., as implied by the CWA)

would result in "massive economic and social dislocations by shutting down entire industries."

Such laws also often impose limits on innocent or even beneficial activities (Barnett and

Terrell 2001: 10) as suggested above by the discussion of the private-interest influences on

environmental statutes, so the full enforcement of the statutes is clearly unwarranted. Even some

supporters of citizen suits recognize that increased enforcement is not always appropriate.

Thompson (2000: 190) notes, for instance, that "environmental standards, moreover, cannot and

do not take into account all contingencies. Individuals and companies sometimes find that the

course of action presenting the least risk to health or welfare requires at least a technical violation

of existing environmental standards." But there is the problem goes beyond this. The fact is that

many of the strict technology-based requirements imposed on point sources under the CWA

impose extremely expensive requirements on firms that have no measurable impact on water

quality, for instance, often because non-point sources are the true source of the problem. Indeed,

57

“none of the available data can demonstrate that water quality nationwide is demonstrably better

than it would have been absent the Clean Water Act” (Adler 2001a: 49). Taken out of context,

this might suggest that greater enforcement is needed, the point Adler is making is that vast

amounts of regulatory and compliance resources are being wasted because the existing regulatory

approach does not, and cannot, achieve what it is purported to achieve. Therefore, investing more

regulatory and compliance resources into this process will also be wasteful. Clearly, full

enforcement is not desirable, and the fact is that Congress never intends full enforcement of such

overblown demagogic laws, as evidenced by the limited enforcement budgets that they provide.

As Greve (1990: 381) notes, "Having failed to make trade-offs at the legislative stage, Congress

must make them in the enforcement process, and a 'lack of [regulatory] resources' is the most

basic and effective way of doing so."

Lazarus (1991: 329) explains that the "EPA has consistently received a level of funding

far lower than the amount required to provide the agency with even a small chance of moderate

success in implementing its statutory mandates." Similarly, Case (2001: 57-58) described the

EPA as "an agency long provided with vastly insufficient resources to meet the overwhelming

and perhaps unattainable demands of existing mandates." Taken out of context, this point also

may suggest that the environmental statutes are in fact under enforced, and that citizen suits are

justifiable. Before this conclusion can be drawn, however, one must then ask, under enforced

relative to what? While many supporters of citizen suits reply, under enforced relative to

congressional mandate, it should be clear by now that the statutes themselves are not an accurate

reflection of Congressional objectives. A better measure of Congressional objectives is the

budget that they allocate to the EPA. If Congress really wants greater enforcement efforts by the

EPA they can obtain them by increasing the EPA budget (Greve 1990: 382), as explained below.

Of course, by allowing citizen suits, Congress has suggested that it wants more enforcement than

what can be supplied by the EPA, given its budget constraint, but it clearly does not follow that

Congress wants full enforcement. After all, if they did they would have allowed created an

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environment that would have attracted for-profit legal firms to be private attorneys general

(Greve 1990: 382). This suggests that the real purpose of the citizen suit provisions is not

increased enforcement as much as it is to legalize the involuntary transfer of wealth from firms to

environmental groups, as Greve (1990) concludes. There is another purpose to, of course.

Like the overblown statutes themselves, the citizen-suit provisions have garnered the

support of environmental groups for members of Congress in their reelection bids, as they appear

to be mandating dramatic changes in the environment while simultaneously generating revenues

for these groups. Unfortunately, by the time the potential evidence of the incompatibility of these

over-reaching statutes with actual budget authorizations becomes obvious, and by the time that

the extortionary practices that the citizen suits generate are fully recognized, at least one and often

several elections have come and gone. Furthermore, it is very difficult to measure the negative

consequences of pre-election political actions or determine the causal linkage between the failure

to follow through on demagogic statutes. After all, each Congressmen must deal with large

numbers of others in order to reach budget agreements. Furthermore, since the actual regulations

must be implemented by a bureaucracy, or in the case of actual citizen suits, the courts,

Congressmen can blamed the agency or the courts for failing to implement the hyper-technical

rules and/or achieving the impossible goals that the legislators intended, or for allowing the

undesirable consequences (e.g., extortion) to occur. As Greve (1990: 390), legislators can avoid

the responsibility of making tradeoffs ex ante by "making difficult regulatory choices look easy"

by mandating "zero pollution" and facilitating "the enforcement of that objective by the

constituencies who demanded it", because it then "disavows responsibility for the results.

Enforcement cartels and coerced wealth transfers are an integral part of this technique of reducing

the costs and increasing the benefits of doing legislative business." The fact is that the statutes

themselves were not designed to serve the public interest, so increased enforcement is not likely

to either.

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These statutes are the products of the demands of special interest groups, and the political

efforts of legislators attempting to garner support in upcoming elections. While some of the

groups, and even some of the legislators, may be pursuing what they believe is in the public

interest (a subjective concept that need not match with the views held by many and perhaps most

other citizens), others are influencing the statutes in pursuit of self-interests. Indeed, there are

very good reasons for even reducing enforcement rather than increasing it. For instance, when

political action pays off for some groups, others are encouraged to enter the political arena in

pursuit of their own benefits. As Tullock (1967) explains, the political competition for wealth

transfers or rents (i.e., to influence the allocation and enforcement of property rights (Benson

1984, 2002, 2004)) is wastefully inefficient because it diverts potentially productive resources

into the political process. In this context, "Once Congress manages to confer law enforcement

powers upon its contingencies, public administration mirrors its worst institutional proclivities --

a diffusion of responsibility, a relentless orientation toward procuring economic rents instead of

public benefits, an utter inability to distinguish between the implementation of public purposes

and the conferral of 'regulatory beneficiaries.' There is perhaps no better illustration of this

inability than the ambivalent status of 'citizen-plaintiffs' between private actor and public

authority" (Greve 1990: 391). But there are other consequences as well.

Victims of the transfer process have incentives to defend their property rights, of course,

and while part of these defense costs involve investments in political information and influence,

there are other options for potential victims to pursue. Exit may be possible, for example,

whether by moving to an alternative political jurisdiction, or by hiding economic activities (e.g.,

illegal waste disposal, filing false reports about emissions). Yet another option, as Kirzner (1985)

stresses, is that market entrepreneurs can find many opportunities to make what tend to be

"superfluous," but none the less profitable, adjustments in the face of the artificial regulatory

constraints, that frustrate the intended objectives of the regulations. Therefore, in order to induce

compliance with regulations, the rule makers will generally have to create new rules and rely on

60

an enforcement bureaucracy, in an effort to execute the rules as intended, and to block to

superfluous adjustments. These enforcement efforts are still another source of opportunity costs

that accompany a regulatory process. The transactions costs of assigning and enforcing property

rights mean that entrepreneurial opportunities to exploit uncontrolled margins inevitably exist, so

the disequilibrating consequences of efforts to use legislation and regulation may be quite

significant. The evolution of a regulatory regime is path dependent (Benson 2002, 2004). Had a

different path been initiated, the level of inefficient wealth dissipation may well have been

considerably less. On top of this, Kirzner (1985) explains that one consequences will be the

stifling of entrepreneurial innovations in the regulated market. In this context, an Environmental

Law Institute (1998: 5) study concludes that the current system of environmental regulation "has

created significant barriers to innovation." Furthermore, Adler (2001a: 65) explains that "The

threat of citizen suits magnifies the anti-innovation aspects of the current regulatory regime by

increasing the costs and uncertainty involved in the permitting process…. Insofar as

environmental groups are able to use citizen suit provisions…, they can increase the marginal

cost and uncertainty involved with facility improvements. Potentially beneficial (wealth

increasing) innovations do not occur, in part because entrepreneurs are diverted along a new

evolutionary path involving superfluous innovations that are motivated by efforts to avoid the

costs of the regulations or to capture artificially benefits. As Powers and Chertow (1997: 20) the

complex technologically-based environmental standards encourage firms to base focus on

compliance in ways that avoid technological violations rather than looking for ways to actually

reduce their impacts on the environment. Citizen suits exacerbate this problem too, as they

increase the expected costs of technical violations. Such "microeconomic" effects may be

extremely costly in the long run but there is no way to measure such costs since they cannot even

be observed.

There is also a broader "macroeconomic" effect as well, as suggested by North (1981,

1990) and implied by Olson (1965): faced with the probability of involuntary transfers,

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productive individuals' property rights to their resources, wealth, and income flow are perceived

to be relatively insecure, so their time horizons are relatively short, reducing incentives to

conserve and/or invest in maintenance of and improvements to their assets, and their incentives to

earn income and produce new wealth that might be appropriated, also are relatively weak. Thus,

a highly regulated society is, in a macro sense, a relatively unproductive society. As the

regulatory process becomes more intrusive and arbitrary, property rights become increasingly

insecure, and the opportunity costs of regulation can become tremendous, perhaps stagnating an

entire economy or putting it into absolute decline. This clearly can have a detrimental impact on

the environment, of course. After all, there is considerable evidence that environmental quality is

a "normal good" (Norton 1998, Goklany 1995, 1999). That is, as income or wealth increases,

people demand more environmental quality. There is little doubt that "Wealthier societies have

both the means and the desire to address address a wider array of environmental concerns" (Adler

2001a: 67).

III.3. Does Bureaucratic Failure Justify Citizen Suits? Many citizen suit advocates

would deny the arguments made above, of course, and on top of that, they would contend that

environmental regulatory agencies are biased in the direction of too little enforcement. In this

context, for instance, Johnson and Libecap (1994: 1) wrote:

Cynicism about the federal bureaucracy is widespread. The general public views federal employees as aloof, uncaring bureaucrats who are unresponsive to their requests. Throughout the country, there is a prevailing sense that government is synonymous with inefficiency and waste and that the federal bureaucracy is essentially out of control. Discussions in both the academic and the popular press have focused on the issue of poor productivity and ways to make the bureaucracy more effective and responsive to voters in the provision of services.

The EPA and other enforcement bureaucracies have certainly been widely characterized in similar

terms, to suggest that this agency is likely to under enforce environmental statutes (e.g., Babich 2003:

225-238). Other reasons for expecting under-enforcement are also given, including the agency

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capture hypothesis, which suggests that industry will dominate the regulatory process at the expense

of the public at large. 80

In order to understand bureaucratic decisions and behavior, let us start by recognizing that

enforcement authorities exchange their enforcement services for a budget. This type of exchange

has been modeled by Niskanen (1975),81 who assumes that a bureau manager is a utility

maximizer with income and non-monetary perquisites (e.g., prestige, staff support, travel, leisure

time or shirking, social and physical amenities, discretion in doing the job) as arguments in the

utility function. Income and perquisites are in turn assumed to be functions of both the bureau's

output (i.e., the size of the bureau) and its discretionary budget. The bureau also faces oversight

monitoring and control by the sponsor (e.g., legislature or legislative oversight committee).

Niskanen's (1975) model has been adapted to describe a regulatory process (Benson and Greenhut

1986). The model predicts that mangers of enforcement bureaus prefer stricter enforcement of

whatever regulations than the level of enforcement that the legislature wants. Thus, if Congress

wants strict enforcement of strong pollution standards, the EPA director has incentives to enforce

those standards even more strictly, but if the Congressional oversight committees are actually

more concerned with enforcing the aspects of regulations that transfer rents or wealth to firms and

unions in their districts, the agency will have incentives to over enforce those regulations. These

over-enforcement implications are qualified below, but they should not be surprising. Naturally,

the head of such a bureau is likely to be chosen because she has preferences complementary to

those of the political sponsors/monitors. She also wants to please political sponsors because they

control the bureau's budget and many of the benefits of heading a bureau increase with an

increase in bureau size. Indeed, over-enforcement incentives reflect, at least in part, this

80 Zinn (2002: 107-132) provides a detailed overview of the capture theory as it applies to environmental regulation. Claims of capture in environmental regulation can be found in Cronin and Kennedy (1979: 179), Ringquist (1993: 87), Esty (1999: 1548), Mank (1993), Sabatier (1975: 308), Williams (1996: 506), Davies and Davies (1975: 101), Lowry (1992), Babich (2003: 227), and several references in note 54.

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relationship between benefits and bureau size. Furthermore, since Congressional desires reflect

the demands of strong interest groups, the bureau head wants to attract support from those groups

as she bargains for increased budget and size. One implication is that if a regulatory bureau

appears to be "captured" because it favors one (or more) interest group(s) (e.g., an industry) over

other groups, it is likely that it is because political sponsors who monitor the bureau and

determine its budget want that group to be favored. A bureau like the EPA may be captured only

to the degree that it can get a greater budget and over enforce the rules that benefit the group(s)

that Congress wants it to favor.

Size is not the only objective of bureaucratic managers under the Niskanen-type model of

regulatory behavior, however. Bureaucratic agencies also have incentives to "inefficiently"

enforce whatever regulations they do enforce, in the sense of spending a larger budget per unit of

enforcement than is necessary, if they can appropriate part of the budgets allocated by the

legislature for their own benefit. Whether an agency can actually depart from the legislature's

objectives by over-enforcing regulations, or by operating inefficiently in order to generate

discretionary budgets, clearly depends on the amount of monitoring and control that occurs.

Some writers [e.g., Fiorina and Noll (1978); McCubbins, et al. (1987, 1989); Weingast

and Moran (1983)] see legislative monitoring and institutional constraints on bureaus as being

quite tight, so that bureaucrats are not able to depart very far from the wishes of their sponsors. If

this is true then regulatory capture clearly cannot occur without legislative permission. Others

see political control to be weak [e.g., Tullock (1965); Niskanen (1968, 1971, 1975); Breton and

Wintrobe (1975, 1982); Benson and Greenhut (1986); Benson (1995)], however. Naturally, if

there were no constraints on legislators' time, resources, and knowledge, they would force

politically efficient behavior, but constraints do exist (Tullock 1965: 72-73; Niskanen 1975,

Breton and Wintrobe 1982)). In fact, much more time and effort apparently ends up being

81 Niskanen's (1968, 1971) earlier model of bureaucratic decision making (1968, 1971) was significantly modified in Niskanen (1975) in light of comments by Mique and Belanger (1974) and Breton and Wintrobe

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directed at dealing with interest groups than with bureaus (Neely 1982: 67-80; Johnson and

Libecap 1994: 139), and knowledge of many aspects of actual bureaucratic production is very

costly to obtain. In this context, Breton and Wintrobe (1982: 108-131) characterize much of what

bureaucrats do to be "policy advocacy" rather than simply the policy implementation implied by

Niskanen-type static-equilibrium models, and characterize the bureaucratic institutional process

as one dominated by "entrepreneurial competition" wherein individual bureaucrats pursue their

subjective goals by selectively seeking and implementing policy innovations. The multi-

dimensional competition includes the general struggle for budgets, as well as competition for

positions and promotions in the formal bureaucratic structure.

Bureaucrats have clearly demonstrated a willingness to "propagate" their own policy

agendas.82 Furthermore, they have a relative advantage in interest group competition. They are

already organized, and they are naturally well informed about a narrowly focused political issue.

Bureau managers also can generally appropriate a portion of their discretionary budgets to cover

some or all of their lobbying costs while other interest groups generally have to solicit

contributions. They also have ready access to elected officials who pass laws and set budgets, as

they are virtually always called upon to provide "expert opinions" and evidence when issue that

affect them are considered. Indeed, much of the "agreed bill" legislation passed in any session is

written and pursued by bureaucrats rather than by representatives of other interest groups [e.g.,

see Berk, et al. (1977), Neely (1982: 80), and Benson, et al. (1995)].

Bureaucrats' power and discretion depend on the degree of uncertainty, and they

themselves are often in a position to expand that uncertainty through "selective distortion"

(Breton and Wintrobe 1982: 39). Thus, the oversight sponsor faces the duel problem of

determining both what the bureaus output should be from a political perspective, and how it

should be produced, with the potential for bureaucrats misleading them on both counts. Bureau-

(1975).

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crats also have incentives to "educate" sponsors, by selectively informing lawmakers of the

strength and wishes of other interest groups. Consequently, interest groups press their demands

to bureaucracies as well as (or instead of) to legislatures, as suggested above. Yet another

implication is that bureaucrats have incentives to "educate" potential interest group allies and to

"propagate" their agenda indirectly through "public information" or miss-information campaigns.

Furthermore, they have incentives to understate (or hide) the costs of their actions. Even the

interest groups that gains benefits are likely to have relatively poor information about the actual

costs of producing the service from which they benefit. They probably are not very interested in

information about the costs to taxpayers or others who lose property rights, but whether they are

or are not, they certainly do not want information about those costs (or the magnitude of their

benefits) to be readily available, for fear that those actually paying the costs will find out.

Bureaucrats (whether they want to capture personal benefits or believe strongly that the public

benefits they produce are very important) also do not want the full costs of their activities known

(Benson 1995), so the interest groups and bureaucrats tend to be allied in this regard. Indeed,

competitive strategies employed by entrepreneurial bureaucrats include: "(i) alterations in the

flows of in information or commands as these move through or across the hierarchical levels of

the organization; (ii) variations in the quality or quantity of information leaked to the media, to

other bureaus in the organization, to special interest groups, and/or to opposition parties and rival

suppliers; and (iii) changes in the speed of implementation of policies as these are put into effect"

(Breton and Wintrobe 1982: 37-38). These strategies and selective behavior in general are

possible because of the way bureaucratic organizations and hierarchies work, including the fact

that monitoring by superiors and sponsors is costly and the measurement of bureaucratic

performance is generally difficult or impossible. Indeed, such strategies increase monitoring

costs and make measurement of performance even more difficult. After all, individuals who

82 See Tullock (1965); Benson (1983, 1995b); Benson, et al. (1995); Mast, et al. (2000); and other references discussed in Benson (1995b).

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depend on a particular bureaucratic process for their livelihood have strong incentives to maintain

it and prevent the implementation of competitive alternatives.83 Thus, control of a bureau should

be "imperfect" in the sense that politically ideal outputs are not likely to be produced and

production is not likely to occur at minimum costs (discretionary budgets exist).

In one prominent studies of bureaucratic control, Weingast and Moran (1983) examined

Federal Trade Commission behavior, and finding evidence of Federal Trade Commission

responses to political demands of Congressional oversight constituencies, concluded that

bureaucrats are effectively controlled by Congress. As Johnson and Libecap (1994: 158) point

out, however, "Showing that Congress had sufficient power to control a 'runaway' agency does

not deny the existence of independent bureaucratic behavior." Indeed, the fact that bureaucracies

do respond to political influences on their oversight sponsors simply suggests that a Niskanen

(1975) type model may apply: bureaucrats rationally respond to the incentives and constraints

that they face. Thus, Faith et al., (1982: 342), who examine very similar issues to those explored

by Weingast and Moran (1983), conclude that "we would not be so hasty in discarding [either]

budget-maximizing [arguing against Weingast and Moran (1983)] or congressional influence

hypotheses [arguing against Katzman (1980) who finds no evidence of congressional influence on

FTC behavior] about regulatory bureau behavior." In general, the empirical literature suggests

that an uncontrolled bureaucracy model does not explain bureau behavior, but neither does a

model which assumes that the bureaus have no discretion and simply respond to the demands of

legislatures (Benson 1995). For instance, Giroux (1989), in his examination of the effectiveness

of financial and compliance audits as control devices to assist in monitoring local bureaucrats,

83 Others may also support the bureaucracy in this regard. Individuals facing large potential losses due to the discretionary application of complex rules will want to avoid the negative consequences of such rules, for instance, so specialists in interpreting rules and avoiding their consequences are likely to offer their services to such individuals. Like bureaucrats, however, these specialists (e.g., lawyers, consultants) also rely on the process and its complexity for their livelihood, so they have incentives to organize and gain political influence in order to resist changes in the system that might reduce the demand for their services, and to demand stronger barriers to exit from the jurisdiction in which they have developed specialized expertise (Benson 2004).

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finds that such efforts can be effective to a degree but that their effectiveness can be reduced as

bureaucrats used strategic roadblocks to thwart the audits. Similarly, Zardkoohi and Giroux

(1990) find that bureaucratic discretion and employment both rise as monitoring costs rise.84

This literature suggests that bureaucratic agencies do have discretion, so the EPA and

other environmental agencies can choose enforcement levels and strategies that are not

completely consistent with Congressional preferences (although they are likely to depart from

those preferences in the direction of over enforcement rather than under enforcement of whatever

rules Congress wants enforced). Yet another implication of the literature on bureaucratic

behavior should be noted in the context of citizen-suit activity, however. Lindsay's (1976)

recognizes that many bureaus produce numerous outputs, some of which are easily measurable

and some of which are not. Therefore, a bureaucrat has incentives to produce the measurable

outputs in qualities that correspond to the monitor's (e.g., Congressional oversight committee's)

desires, while exploiting the uncertainty associated with unmeasurable outputs (e.g., to gain

discretionary budget). Lindsay (1976) finds that the Veteran's Administration in the United

States provide expected levels of easily measured outputs (hospital beds, patient days) while

producing relatively low quality (i.e., inefficient) services for unmeasurable outputs. On

measurable dimensions then, the bureau may look like it is effectively controlled by the monitor,

"but if all dimensions cannot be monitored, then some power to scrimp on these attributes rest

with those in the bureau, who can use the savings to forward their own interests" (Mueller 1989:

258). This discretion could be the source of potential regulatory (as opposed to legislative)

capture, but citizen suits, as practiced, do not alleviate the potential. After all, most citizen suits

have been directed at the easily observed technical violations of permits or paperwork

requirements of the CWA and RCRA. The enforcement of these violations is an easily monitored

and measured output of the EPA, as evidenced by the citizen suits themselves. Therefore, the

84 Additional empirical evidence of bureaucratic discretion and the importance of discretionary budgets is provided by Kress (1989), Benson, et al (1995) and Mast, et al. (2000).

68

EPA would, in the absence of citizen suits, have strong incentives to enforce such violations at

levels that correspond to congressional desires. To the degree that the EPA may "under enforce"

such violations today, it is likely to be because citizen suits do exist. In other words, if under

enforcement does occur in the regulatory areas that citizen suits generally attack, it does not

follow that it would exist in the absence of citizen suits. Assuming that Congress wants

something like the current level of enforcement for such violations, given the combination of

regulatory and citizen-suit enforcement, then if citizen suits were eliminated, the EPA would

increase their enforcement activities against these technical violations.

Let us move beyond the Niskanen-style model now, by adding interest groups more

directly into the analysis. The various environmental, industrial, and labor groups who attempt to

influence legislation also have incentives to monitor and influence (capture if possible)

bureaucratic performance. Indeed, as Tollison (1987) explains, the delegation of the actual

regulatory powers to agencies means that there are at least two stages to the interest group

process. The first stage involves legislative creation of a regulatory process. Once the regulatory

apparatus is in place, interest groups must compete to influence the actual enforcement of

property rights that the legislation makes available (i.e., to capture the benefits and/or avoid the

costs of regulation). This is quite consistent with the Peltzman (1976) point that the distribution of

benefits will vary if the members of an interest group are heterogeneous, of course, but much of

the actual distribution of benefits and costs occur through bureaucratic rather than legislative

actions. Furthermore, given imperfect monitoring and the resulting bureaucratic discretion, those

who want to avoid losses can also continue to compete in the second stage in an attempt to

minimize loses, even if the first stage goes against them. In light of imperfect oversight

monitoring and resulting bureaucratic discretion, this implies the potential for bureaucratic (as

opposed to legislative) "capture" by a group or groups other than those favored by the legislature.

Such capture probably has a relatively short time horizon, since dramatic departures from the

wishes of legislators will attract attention, particularly if it begins to influence relevant legislators'

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political support and reelection possibilities. Greater oversight, new legislation imposing more

specific requirements and constraints on the agency, and budgetary restrictions are possible likely

results. Consider the 1984 Hazard and Solid Waste Amendments to RCRA (42 U.S.C. 6924 (d)),

for instance. Szasz (1994: 130-32), Plater, et al. (1998: 788-789), and Rosenbaum (1995: 222) all

contend that a Congressional majority felt that the Reagan EPA was not implementing RCRA in a

fashion that was consistent with their desires. As a result, this 1984 amendment included the

"land ban" which prohibited all disposal of specified hazardous wastes in landfills if the EPA did

not identify safe storage methods consistent with the statutory criteria within 32 months of the

amendment's passage. Zinn (2002: 114) notes that "this provision made regulatory advocates of

the regulated firms, which hoped to forestall the land ban by encouraging EPA to adopt more

palatable rules within the 32-month deadline." Nevertheless, both substantial short-term

departures from legislative wishes and relatively modest long-term departures are clearly

possible. As Johnson and Libecap (1994: 158) stress, Congress clearly can control a "runaway"

bureaucratic agency, but the possibility of "independent bureaucratic behavior" still exists.

Nevertheless, "industry" capture is not likely to characterize the EPA. The theory of

industrial capture was developed to explain the outcome of a very different kind of regulatory

environment. Specifically, capture theory often appears to explain the economic regulation of a

regulatory agency responsible for the regulation of a single industry. Thus, for example, a state

utility commission may regulate the electricity market in a fashion that favors the utility

companies in the state, by dividing the state into unique service areas (i.e., monopolized markets)

for each firm, preventing entry, and setting either minimum or exact prices that allow the firms to

collect large rents from their artificial monopoly positions. Similarly, the Interstate Commerce

Commission's (ICC) regulation of railroads before the mid-1930s appears to fit the capture model

in many ways (Benson 2002). Importantly, however, even these apparent examples of captures

do not imply that the regulatory outcome is different than what was desired by legislative

oversight, for at least two reasons. First, in all likelihood, the regulated industries in such

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examples are the most powerful interest groups concerned with such regulation, so the initial

legislative action was not public interest (e.g., consumer protection) legislation to start with. For

instance, there is strong evidence to suggest that the ICC Act itself was motivated, in large part,

by the demands of the railroad industry to end the "ruinous competition" that the industry was

engaged in (Benson 2002).

Second, and consistent with Peltzman's (1996) interest group model of regulation, even

these examples of focused regulation do not result in the agency exclusively favoring the

"industry". For instance, utility rates may be much lower for certain consumer groups who have

considerable political influence. Large users like aluminum manufactures and other industrial

groups probably get favorable rates, as do universities, city and state government facilities, and so

on. Because these groups have large per capita stakes, and they are all relatively small in number,

they are likely to be able to organize and lobby both the legislature and the utility commission for

favorable rates. General residential consumers, on the other hand, have small per capita stakes

and are large in number so they lose out, both in regard to the enabling legislation and its

application. Thus, some of the regulatory rents are not allocated to the regulated industry, as

other powerful groups are able to obtain favors too. Similarly, when a single regulatory agency

regulates more than one industry, competition for regulatory rents (wealth transfers) will arise

between these industries. Thus, for instance, when the Motor Carriers Act added the interstate

trucking industry to the ICC's regulatory jurisdiction in 1935 (in large part because the railroads

did not want to face intense competition from unregulated truckers, so they lobbied for regulation

by the ICC in hopes of continuing their dominating influence to restrict such competition), the

political competition between the two industries became intense. The trucking industry

ultimately was able to dominate the railroads, to the significant detriment of the railroad industry

(Benson 2002). This industry did not capture all of the rents, however, as its union (the

Teamsters) were able to use their political and economic power to redirect rents into their pockets

(Benson 2002). Furthermore, the apparent "capture" of the ICC by the trucking industry and

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Teamsters union certainly does not mean that the agency was working against Congress,

however. The trucking industry, supported by the Teamsters in its effort to dominate the railroad,

apparently was also much more influential in Congress than the railroads over this period.

Therefore, while a bureaucracy does have incentives to "over-regulate" to a degree, relative to

what the legislature prefers, it is likely to simply be overly supportive of the interest group that

the legislative oversight group favors. In all likelihood, this regulation will not appear to be

consistent with the alleged public interest objectives of the enabling statute, but that is because

the actual objectives of the statute are to support private interests, and the public interest language

simply masks that intend for political reasons.

Unlike the examples above, where one or a few industry groups are subject to economic

regulation by a particular agency, the EPA regulates a huge number of different industries. This

vast array of industrial interests includes many that are in direct conflict with one another (e.g.,

Eastern- and Western-coal producers, waste disposal firms and cement firms, unionized and non-

unionized firms). Indeed, in the area of environmental regulation, firms and industries are more

like consumers competing for the attention of a state utility commission than they are like the

utility industry. There are thousands of firms and at least hundreds of industries. The cost of

organizing all of them in order to raise a united front in the face of the smaller number of

environmental advocacy groups who have relatively homogeneous interests, is similar to the cost

of utility consumers offering a united front against the small number of utility firms. Some

consumer groups are sufficiently well organized and powerful to gain some favors from utility

commissions (with at least implicit support from legislators), but often at the expense of other

consumer groups. Similarly, some industry (and labor) groups are able to gain benefits through

environmental regulations (e.g., Eastern coal producers), but generally at the expense of other less

effective groups (e.g., Western coal producers, consumers of electricity produced at higher costs,

people who live in areas subject to greater pollution because the regulations delay and divert

innovation). Indeed, if capture does occur in environmental regulation, it appears that the

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environmental groups themselves are most likely to do the capturing. As noted above, they are

relatively small in number, and their interests are probably much more homogeneous than the

thousands of firms and industrial groups subject to regulation. The citizen-suit provisions

themselves actually suggest that major environmental groups are treated relatively favorably by

Congress, for instance.85

Some have also suggested that industry capture of regulation, in contradiction to

legislative intent, might be easier when enabling legislation is open-ended. Traditional economic

regulation often has been established by statutes mandating that the agency regulate in the "public

interest" (e.g., the Federal Communication Act) or that it prevent "unfair" competition (e.g., the

Federal Trade Commission Act). It certainly appears that regulations that result from such broad

and general mandates have often ended up favoring various firms and industries, but again, inter-

industry competition for rents often characterizes the regulatory process, with some industry

groups favored while others are not. Antitrust enforcement through the FTC and the Department

of Justice often has been used to prevent competition, for instance (e.g., the Robinson-Patman Act

anti-price discrimination rules was successfully used by local firms to prevent competitive pricing

practices by firms shipping their products into the local market). Furthermore, the apparent

capture may well be completely consistent with the desires of the legislative oversight group.

However, even if such open-ended statutes do tend to create opportunities for unintended (from

the legislature's perspective) capture, federal environmental statutes are generally very different

(Bardach and Kagan 1982: 46-49, Reagan 1994: 95-97, Marcus 1980: 267-268, Merrill 1997:

1052, Rosenbaum 1995: 208-209). Environmental statutes typically set very specific (if

unobtainable) objectives, including detailed lists of regulatory targets regarding specific

industries and/or chemicals, as well as specific dates by which the objectives are to be achieved.

85 Zinn (2002: 132-137) sees citizen suites as a tool created by Congress to mitigate against industry capture, but if that is its purpose, one must ask why this tool has not also been used to counter industry capture in other areas of economic regulation? An alternative explanation is offered here: citizen suits are a result of the "capture" of Congress by environmental advocacy groups.

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As suggested above by the discussion of the 1984 Hazardous and Solid Waste Amendment to

RCRA, environmental statutes can also establish severe consequences if the EPA fails to act by

the date set in the statute. In some cases environmental statutes even set rigid standards that will

not allow the regulatory agencies to consider any factors (e.g., compliance costs) that might be

balanced against those standards.

In an overview of capture theory and its implications for environmental regulation, Zinn

(2002) discusses several of the points made above, as well as others, and concludes that capture

of state environmental agencies is much more likely than capture of the EPA. In this context, it

must be noted that state agencies, rather than the EPA, actually are the major source of

environmental enforcement under the federal statutes. States receive "primacy" when they adopt

a program meeting various requirements set out in statutes and EPA regulations.86 Thus, for

instance, states initiated almost three times as many administrative actions as the EPA and more

than three times as many civil judicial referrals as the EPA under the CWA, CAA, SDWA, and

RCRA between 1987 and 1996 (Zinn 2002: 92). At least on the surface, it may appear that state

agencies are much less likely than the EPA to regulate as Congress wants, because state

legislators determine these agencies' budgets and provide oversight, rather than Congress.

Beyond that, as Zinn (2002: 122) notes, state legislatures and agencies generally face much less

diversity of interests than the federal government. Many national environmental advocacy groups

are likely to be much less active at the state level,87 for instance, and a much smaller array of

industrial interests is also likely to be present. Industrial interests, therefore, may be more likely

to coalesce in a united campaign to reduce enforcement. Accordingly, Zinn (2002: 123)

86 See for instance, 33 U.S.C. 1342(b) (1986 & Supp. 1000) (CWA National Pollutant Discharge Elimination System program), and 42 U.S.C. 6926(b) (RCRA Subtitle C). A substantial majority of the states have obtained primacy for most of the federal environmental programs (Zinn 2002: 91). States may perform as much as 90 percent of environmental enforcement (Zinn 2002: 91, supra note 32). 87 Environmental groups have more representation at the state level than they ever have in the past, however (Thomas and Hrebenar 1996: 155). Still, they may be relatively less influential in many states than local industry or union groups.

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concludes that "the narrower and less-balanced array of interests active at state and local levels

means greater risk that state and local environmental agencies will be captured."

Two counter points must be raised, however. First, if Congress is able to control the EPA

then EPA oversight should involve an effort to induce state agencies to favor those interest

groups that congress favors, of course. Naturally, however, EPA oversight will be imperfect, just

as Congressional oversight of the EPA is imperfect, so this point does not imply that state

agencies will have no discretion (and therefore, no potential for capture).88 On the other hand,

the EPA can supplement state enforcement with its own actions within a state, so if a state agency

gets too far out of line relative to Congressional/EPA desires in the direction of under-

prosecution, the EPA can counteract the state's capture.89

There is a second counter point that is even more important. Congress may well want

different groups, including different industries, to be favored in different states. Some of the

environmental statutes themselves have actually favored industrial groups in some parts of the

country over groups in other parts of the country, after all (Maloney and McCormick 1982,

Ackermann and Hassler 1981, Pashigian 1985, Meyer and Yandle 1987, Hird 1993, Adler 2000).

By allowing state agencies (and importantly, state legislatures responsible for budgets and

oversight) to favor those groups that are most powerful within their states, resistance to federal

statutes, and opposition to Congressmen from each state who voted for those statutes, can be

reduced. In fact, it is likely that considerable log rolling occurred in order to get sufficient

Congressional support for the environmental statutes. Individual Senators and Congressmen from

states and districts dominated by industrial and/or union interests might be willing to support such

88 Zinn (2002: 95-96) notes that the EPA can, at least in theory, revoke a state's primacy, but he contends that "this threat is basically empty because EPA lacks the resources necessary to rescind primacy from even a few states." Of course, if it is capable of doing so for one or two, then the threat to each state is likely to be real , at least until the EPA actually does take action against some state or states. 89 Zinn (2002: 96) recognizes this possibility but suggests that such supplemental EPA enforcement is "rare." This fact does not prove that states are necessarily easy to capture, however. Indeed, it may reflect precisely the opposite conclusion. It may be that the EPA does not have to take such actions because the states agencies are not being captured by any group that differs from the ones that Congress, and therefore the EPA, want to be favored. This point is particularly relevant in light of the next point raised in the text.

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statutes if they are assured that decisions regarding the actual application of the statutes within

their states and districts will be made by state-level officials who recognize the importance of

those interests, and are, therefore, not be overly zealous in prosecuting violations. Similarly,

members of Congress from states with very strong environmental advocacy groups may want

relatively zealous enforcement compared to other states and the EPA. In other words, variations

in the relative zealousness of state enforcement may well be perfectly consistent with actual

Congressional intent, given the variation of interest group focus and strength across the states that

elect Congressmen. Indeed, if this is not the case, one must ask why Congress allows state

enforcement?

If the alleged democratic benefits of citizen suits do not arise, as suggested above, and if

the federal environmental statutes are not "public interest legislation" that necessarily should be

more vigorously enforced through citizen suits, and if industry capture of the regulatory process

does not appear to justify increased enforcement through citizen suits in order to achieve

Congressional intent, then what is left. Garth, et al. (1988: 366) suggest that "When the

assumption of goodness [of the groups using private attorneys general] became difficult to keep

free of debate…, [and then] when serious questioning began of the notion of redistributing

advocacy resources and promoting ‘special interest groups’ (who by definition tended to promote

their own agendas rather than the goal of economic efficiency), the contours of the debate [over

private attorneys general] shifted even further. We are left with the market and economic

efficiency to provide the ‘neutral’ framework for discussion of private attorneys general." Under

this so-called market model, virtue is attributed to the institution of private attorney general

because of it privatizes law enforcement “pursuant to the ideals of economic efficiency” (Garth,

et al. 1988: 353). Let us turn to this contention next.

III.4. Alleged Benefits from Privatization. There are good reasons to expect greater

efficiency through many private institutional arrangements than through most public institutional

arrangements. Relative efficiency does not simply arise because of the public versus private

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distinction, however. A private monopoly or cartel, particularly when it is protected from

competition by regulatory barriers to entry and price reductions, may be much less efficient than a

public bureau that must compete with other bureaus for budgets, for instance. Indeed, if

advocates really do favor the use of private attorneys general because they expect private

prosecutors to be more efficient than public prosecutors, then they have a misunderstanding of the

private-public distinction, and of “efficiency.”90

Consider two concepts of efficiency.91 First, an improvement in "technological

efficiency" implies that a higher "quality" of some defined set of benefits is produced at the same

cost, the same quality is produced at a lower cost, or a higher quality is produced at a lower cost.

Second, an improvement in "allocative efficiency" implies that scarce resources are allocated to

higher and better uses. Whether allocative efficiency is enhanced depends on the opportunity

costs of (i.e., alternative uses for) both the resources used to produce the good or service itself

(i.e., technological efficiency) and the uses that those resources are put to (i.e., allocation of the

resources to produce some other goods or services could either achieve preferred benefits at the

same cost or the same level of benefits at lower costs). In the context of this presentation,

improvements in technological efficiency would be achieved if prosecution by private attorneys

general is less costly than prosecution by public regulators. Improvements in allocative

efficiency would be achieved if the resources used to prosecute generate greater net benefits in

this activity than they would if they were allocated to some alternative use.

90 I may have thought about the potential advantages of privatization of law enforcement (and indeed, of law creation) as anyone [e.g., Benson (1990, 1998); rather than cite all of my published work on this issue as evidence of this claim, interested readers are referred to my vita, available at http://garnet.acns.fsu.edu/~bbenson/]. Indeed, some readers who may be familiar with my support of privatization of many public activities might find my criticism of private attorneys general to be surprising. However, while private prosecution can be quite desirable in the right institutional setting (Benson 1998), I am criticizing the actual practice as it has developed in the U.S., where the “complex mix of public and private involvement…. [produces a] blurring of public and private distinctions” (Garth, et al. 1988: 383-384). In other words, while some forms of privatized prosecution may be quite desirable, other forms need not be. The same is often true of other so-called privatization actions which involve very incomplete privatization (i.e., contracting out by the public sector rather than allowing individuals to interact through a true fully-privatized market) – see Benson (1994; 1998: Ch. 3; 2003). 91 The discussion of efficiency draws from Benson (1998).

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An understanding of the potential for technological and/or allocative efficiency gains

from various kinds of “privatization” (and the likely lack of such gains from other kinds of

privatization) requires an understanding of some basic economic principles. The underlying fact

that leads to these principles is scarcity. There are not enough resources (labor, land and other

natural resources, capital, knowledge) to produce everything that people want. Therefore, choices

must be made. Since there are always tradeoffs, and since people want scarce resources to be

used to achieve their objectives rather than someone else's objectives (whether those objectives

are motivated by selfishness or altruism), they will "compete" to influence the allocation of the

resources.

Scarce resources must be rationed among potential alternative uses, but there are many

different rationing mechanisms that might be established, and the rationing process that is

established determines the nature of the competition that arises. Rationing decisions through

government involves law makers and/or bureaucrats responding to the demands of interest groups

and to their own preferences (including assurance of reelection for law makers, and for

bureaucrats, such things as job security, good wages, perhaps power or discretion), as explained

above. The incentives of individual voters in such a system are discussed above, but in order to

see the potential technological and allocative efficiency implications of privatization, consider

how that rationing process compares to rationing through markets.

When an individual consumer "casts a vote" (spends a dollar) in the market place the

consumer knows that the vote will be decisive, in contrast to the votes cast in the political arena.

No one else shares in the decision (certainly a partner or spouse may have some say before the

vote is cast) so the consumer knows that he will get what he votes for. The consumer will own

the product (or service contract) that is purchased and therefore will be in a position to decide

how it will be used, as long as the use is legal. That means that the consumer can get as much

benefit from consumption of the product as is legally and subjectively possible. Furthermore,

while the consumer does obtain a large bundle of goods and services, the expenditures for each

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component of the bundle are recognized because they are purchased individually, unlike the

political arena where taxpayer/voters are forced to buy a large bundle of products (or more

accurately, a bundle of uncertain promises) with a single decision.92 These circumstances imply

that consumers buying in markets have very strong incentives to gather information, relative to

taxpayer/voters in the political arena. After all, the individual consumer captures the benefits

from a "good" decision (i.e., the purchase of a product that truly provides more satisfaction than

any alternative purchase, given the consumer's money income and the money prices of

alternatives), and bears the costs of a "bad" decision (e.g., the purchase of product when some

alternative would have provided more satisfaction, given money income and prices). Therefore,

consumers benefit directly from any time, effort, and expenses invested in information gathering

and evaluation that increases the likelihood of a good decision. Furthermore, they have access to

much better information than voters do.

Consumers making purchases in a market buy individual units of products and pay prices

per unit, so they can compare the per-unit prices of competitive substitutes. They can also

compare the characteristics of the various products and/or the reputation of their producers (i.e.,

past performance records) in order to determine relative quality. Consumer information is clearly

not perfect and information is costly to gather, so mistakes can be made, but substitutes actually

exist that can be compared on the bases of price and quality (either by direct measurement or by

producer reputation) rather than on the basis of politicians' promises about future policy efforts

(reputations can also be important indicators of the credibility of political promises, of course, but

the fact that most people do not effectively monitor the performance of their elected officials

means that political reputations can also be manipulate by selective distortion).

92 Products sold in private markets are priced and purchased individually unless some bundling of complementary goods is desirable, perhaps due to the reduction in production and/or transactions costs that result in a lower full price for the bundle than the items would cost if purchased separately [e.g., a consumer presumably could buy a car without a radio or tires, etc., and then purchase these items separately, but it would clearly cost more in time and effort (transactions costs) as well as in dollars].

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The prices of products inform consumers about the value of the resources being used to

produce the specific goods and services they are considering. High market prices imply that

some of the resources are quite scarce (e.g., they have alternative valuable uses and because they

are available only in limited amounts, people who want those alternatives are bidding up the

prices of the resources), and therefore they are quite valuable. This creates incentives to look for

lower priced substitutes, and therefore to conserve the relatively scarce resources. In addition,

low prices imply relative abundance, so the search for substitute goods leads to the substitution of

abundant resources for relatively scarce resources. Consumers do not have to actually know what

resources are being used or how rare and valuable they may be, because the prices paid embody

the relevant information. Without such product-specific prices as measures of relative value,

those who consume government produced goods really cannot compare value, so they are much

less likely to recognize lower cost substitutes and shift demands in order to conserve the most

scarce and valuable resources. In other words, allocative efficiency is much less likely to be

achieved when rationing is through government processes rather than through markets.

Producers also have better information about what consumers want in markets than they

do in the political arena. The prices of different goods and services in the marketplace inform

producers of relative consumer evaluations and act to coordinate society's resource allocation

decisions by influencing relative profits. If consumers are willing to pay high prices relative to

the current cost of the resources being used, the resulting profits attract investments and

entrepreneurial entry, while low prices relative to costs of production mean losses, followed by

disinvestment and exit. In other words, prices also transmit information to producers that allows

them to reallocate resources, and to specialize in order to more accurately (and profitably) meet

the specific desires of individual consumers. In fact, while legislators and public bureaus such as

the EPA can not take advantage of price signals in deciding how to allocate scarce resources that

they control, private producers in competitive markets are forced to pay attention to price signals.

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Because so much information is embodied in prices, they serve to coordinate the decisions of

diverse independent decision makers acting as both consumers and producers. For instance,

when consumers want more of some good or service, they bid the price up, and producers who

see the higher prices relative to costs move resources into that market in order to earn profits. Of

course, the resulting increase in competitive supply pushes price back down, although generally

not to its original level - if consumers want more of something they generally should pay more

for it, of course, because the scarce resources used to produce it have alternative uses that must be

sacrificed. On the other hand, if consumers do not like what a producer is providing or the price

being charged, they turn to alternatives. Entrepreneurs must respond with new products and/or

lower prices, or they go out of business.

Private entrepreneurs are residual claimants. That is, they are able to retain any profit

(revenues from the sale of a product that exceeds the expenditures for the resources used to

produce it) while also bearing any loses if production costs exceed revenues. The resulting "profit

motive" provides strong incentives to produce at low costs, but since consumers are free to

choose how they will spend their money, the only way that a private entrepreneur can legally

obtain customers and profits is by persuading people that a quality service is being offered at a

reasonable price, relative to the options available. Private producers cannot simply cut costs by

cutting quality and continue to count on an undiminished flow of revenues, because consumers

will turn to substitutes that are of higher quality for the price, or that have a lower price for the

same quality. Thus, competition forces private firms to offer relatively high quality services at

relatively low prices. That is, technological efficiency actually results more from competitive

pressures than from the profit motive. Furthermore, because consumers are free to immediately

shift their allegiance in a market if someone offers them a better product and/or a lower price,

entrepreneurs have incentives to invest in research and development in order to find lower cost

production techniques and/or ways to improve the quality of their products and attract consumers

and their dollars away from other potential purchases. Since public bureaucrats cannot capture

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the profits that might result from a new innovation, their incentives to discover new and better

ways to serve their customers are much weaker.

Entrepreneurs who want to be in business for a long time have incentives to invest in

building a good reputation. By providing a good value for the money and standing behind the

product (e.g., guarantees, cost-effective maintenance services), a producer can attract repeat

business, and as consumer loyalty increases, others potential customers see their satisfaction and

try the product. The resulting reputation becomes increasingly valuable, and loss of such a

reputation can be very costly. If a reputable firm suddenly started reducing quality relative to

price, for instance, consumer complaints would mount, word would spread, and the firm would

quickly begin losing customers and revenues. Therefore, once a firm has a reputation for quality

the incentives to maintain it are very strong. Furthermore, other entrepreneurs trying to compete

with the reputable firm will have to compete against both the firm's price and its quality. And

significantly, the relevant definition of "quality" is the consumer's definition, not the sellers. In

other words, successful firms (firms that survive in a competitive environment) must be

responsive to consumer desires.

Both improvements in technological and allocative efficiency are relatively likely to

occur in private markets because private entrepreneurs competing in markets are constrained by

two factors: 1) they must compete for the attention of consumers with other firms offering similar

goods or services, so they strive to either offer similar products to their competitors at lower costs

or superior products at similar costs, and 2) they must produce something consumers will

voluntarily choose to buy at a price that consumers are willing to pay. The first implies that

technological efficiency is likely and the second implies that allocative efficiency is likely. When

government functions are turned over to people who are not government employees (i.e.,

privatized), it may be possible to instill the cost reducing and quality enhancing incentives

associated with the first point. The contracting-out process clearly can be appropriately

structured, for instance, so considerable empirical evidence supports the hypothesis is that the

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firms who successfully compete for contracts and build reputations that allow them to get more

contracts in the future do so by finding ways to both reduce costs and enhance quality on a

number of dimensions (Logan 1990; Benson 1998: 26-40). If the private providers do not face

competition, however, then technological efficiency need not be achieved (Benson 1994, 1998).

More importantly, the second source of incentives in private markets are much less likely

to be implemented in the context of any sort of partial privatization of government services, so

there is generally no reason to anticipate improvements in allocative efficiency. When the

provision of services is through government/political channels, whether it involves direct

bureaucratic production or provision by people who are not public-sector employees (e.g., firms

contracting with government, private attorneys general), rather than through markets, individual

"buyers" (taxpayers and/or voters) have virtually no influence over what they buy. Indeed, as

suggested above, the demands that political decision-makers are concerned with are those of

powerful organized interest groups rather than those of unorganized individual voters and

taxpayers. Thus, resources are allocated to generate benefits for members of powerful political

groups even though the aggregate benefits may be smaller than the costs dispersed among general

voters and/or taxpayers. Furthermore, because the actual consumers of most government

services do not pay a unit price, the resulting excess demand leads to dissatisfaction as output is

less than people want when they do not have to pay for it, whether the product is provided by

private entities or public bureaus.93 This point was made by Turvey (1963) with regard to

environmental regulation. No matter what level of enforcement exists, there will be excess

demand by environmental groups because they do not have to pay for such enforcement. If

government responds to this demand and expands enforcement even though the costs of doing so

93 Crowding and congestion are common when goods or services are provided by government, even if government "privatizes" production. For instance, some advocates of contracting out for prisons suggest that such privatization could reduce prison crowding by lowering costs, and thereby increasing the supply of prisons. However, prison crowding reflects both supply and demand forces (Benson and Wollan 1989). Non-price rationing always produces excess demand, so crowding is inevitable even with large increases in supply (Benson and Wollan, 1989), in part because demand also grows over time.

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exceed actual benefits, enforcement resources will be inefficiently allocated. Such miss-

allocation of resources due to interest group demands and non-price rationing may actually be far

more significant than any miss-allocation due to technological production inefficiencies within a

bureaucracy.

With this discussion of the potential efficiency of privatization in mind, let us return to

the private attorneys general in environmental citizen suits. First, within the citizen-suit arena

these private attorneys general are not competing for the attention of consumers (they do compete

for the attention of donors, of course, as discussed below). They do not even compete for a

contractual right to serve as a prosecutor, as a firm under contract to provide some government

service (e.g., a privately run prison, operation of a public toll road, accounting services for a

public agency, etc.) might. Indeed, as suggested above, it appears that the small number of major

producers of citizen suits have successfully cartelized. Thus, there do not appear to be any

significant dimensions of competition, as there might be if legal firms made competitive bids for

a contract to provide this service. Certainly, those groups who are actively prosecuting citizen

suits can do so at relatively low costs compared to the typical individual citizen, but since they do

not have to compete, either with the EPA or with other potential providers of private prosecution,

there is little reason to believe that this so-called privatized means of prosecution is

technologically superior to direct prosecution by EPA employees.

In the absence of competition to force technological efficiency in markets, the incentives

for a private monopoly (or cartel member) to minimize the cost of producing still may arise

through the profit motive, but this motive is relatively weak compared to the threat of

competition. A private monopolist with strong barriers to entry is able to trade off profits for

other personal benefits to the owners and/or manager (depending on how effectively owners

monitor managers, etc.), for instance, such as nice trips for meetings, plush offices, company cars

and chauffeurs, private jets, and so on (e.g., higher salary for the manager), thus raising the

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“costs” of running the business, because no competition exists to force cost minimization. In

theory (and legal standing), the private attorneys general representing environmental advocacy

groups are not seeking profits, of course. In fact, however, the excess revenues that they can

obtain through compensation for legal costs, and through SEPs, can be used to purchase many

things that the environmental groups want (e.g., lobbying services, more lawyers to prosecute

more citizen suits, environmental improvements), so they do have similar incentives to those of a

private monopolist to minimize their own costs in order to maximize such benefits. The lack of

competition also means that these incentives are relatively weak, of course, as the leadership in

these environmental groups may also be able to trade such group benefits for personal benefits.

As noted above, environmental advocacy groups do compete in some dimensions, even

though they apparently do not compete for the opportunity to act as private attorneys general. In

particular, they compete with other “non-profit” organizations, both within and outside the

environmental advocacy area, for the support of voluntary donations. Therefore, they are

attempting to offer a “product” that will attract donors. Part of this product is advocacy of

environmental improvements which, in theory, should enhance allocative efficiency (i.e.,

internalize externalities), but when such improvements are achieved through the political process

they may not be efficiency enhancing. After all, as suggested above, they demand more

environmental improvements than the level that can be efficiently achieved because they do not

pay per-unit prices for such improvements, and therefore, do not consider the costs of achieving

them (Turvey 1963). Furthermore, another product they offer is involuntary wealth transfers,

both through the political process and through their citizen suit activities. Such transfers are not

likely to be allocatively efficient, in part because value is subjective so there is no way to

determine whether the transfer is more valuable to those who gain it or those who lose it. In

addition, the resources employed in achieving the transfers have opportunity costs: they could

produce something that increases overall wealth (welfare) rather than being employed in

redistributing existing wealth (Tullock 1967). Since they are generally paid more in legal fees

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and SEPs than the actual costs they incur to perform the prosecution, and they do not have to

consider either the litigation/negotiation costs or the compliance costs for defendants, they also

pursue more enforcement through the citizen-suit process than the allocatively efficient level. In

this same context, since the citizen suit transfers actually provide revenues for the advocacy

groups, the competitive pressure that they would face if they could only gain revenues from

voluntary donors is reduced. Thus, the groups' leadership may be in a position to sacrifice some

donor support in order to pursue objectives that they personally have strong desires for.94

Technological efficiency is also not likely to be achieved.

In sum, the powers granted to so-called private attorneys generals through citizen suit

provisions are not privatization in any but a very trivial way, and they clearly are not privatized in

an way that creates incentives for either allocative or technological efficiency. The actual result

of this legislation is that the power and discretion of public prosecutors have simply been granted

to select groups who are not public employees, but since they are in a position to extract funding

(i.e., as the government does when it taxes in order to support public prosecutors), a better

characterization of the result would be "publicization" of those privileged groups. Indeed, the

closest analogies to the private attorneys general is not a private market, or even a contracting-out

of the production of some governmentally supplied good or service. The best analogies are

94 Environmental groups face another potential trade off as well, with regard to their lobbying efforts. Environmental advocates now have incentives to support (resist) any legislation or regulatory declarations that will increase (reduce) their opportunities to prosecute, even if some changes would not have a positive impact on environmental conditions. They still are vitally concerned about environmental quality as they see it (this is a subjective concept, of course), but now they are also concerned about their capacity to prosecute, since it is a source of funding. Therefore, they face a tradeoff when a change in congressional or EPA policy increases one benefit but reduces the other. Of course, if they do not face a tradeoff then their support for the change is easy. For instance, if changing a law increases environmental quality but does not increase their ability to prosecute, they still have incentives to support it. Similarly, if a change in law reduces their ability to prosecute and obtain funding, but does not reduce environmental quality, they have incentives to oppose the change. Hard choices arise when a legal change might improve the chances of achieving environmental quality but reduce their opportunities for prosecution, or visa versa. While environmental advocacy groups may deny that they would ever pursue prosecution that does not improve environmental quality, or sacrifice environmental quality in order to pursue revenues through prosecution, their actual behavior suggests otherwise.

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historical state-authorized bounty hunter or qui tam actions ((Bloomquist 1888: 363-368, Greve

1990: 343-350).

The British Parliament enacted the first important public reward statute in 1962; it

offered rewards of forty pounds for apprehension and prosecution of highwaymen. This was a

large amount of money of course, and over the next fifty years a number of other statutes were

passed setting various rewards for aiding in the convictions of burglars, horse thieves, cattle

thieves, sheep thieves, shoplifters, coiners and people who returned from felony transportation

early. The public reward system strengthened incentives for growth of a professional thief-taker

industry, but significantly, public rewards also created incentives to falsely accuse people of

felonies.95 The first historical record that hints of a problem with the public reward system is the

1732 conviction in London of a man who attempted to prosecute an innocent person as a

highwayman in order to collect the reward; and there is evidence that this same man had

successfully prosecuted and received rewards in other counties (Langbein, 1983: 108).

Furthermore, the practice of extortion based on the threat of falsely turning someone in for a

reward was apparently not uncommon, but the problems did not really come to public attention

until August 1754, when "there broke one of the greatest scandals ever to taint the administration

of criminal justice in England, the Macdaniel affair. It came to light that a gang had been

prosecuting innocent men to their deaths in order to collect reward money"(Langbein, 1983: 105-

106). This scandal revealed the flaws in the public reward system. Nevertheless, it continued to

function into the nineteenth century. While actual false accusations did not characterize the early

95 The earliest bounty hunters in the criminal law area were actually fully privatized. In England, individuals were responsible for the protection of their own property and person, and for prosecution of offenders when victimized, but they did not have to physically perform these functions (Benson 1990, 1994). They could and did hire others who specialized in watching, or in catching offenders, or in prosecution. In particular, private "thief-takers" (bounty hunters) pursued and captured offenders and recovered property in order to obtain rewards offered by individuals and private organizations. This private reward system actually evolved, in large part, as victims sought a means of recovering their property without becoming involved in criminal prosecution. It was one of several informal means of dealing with offenders outside of the criminal justice system (Beattie, 1986: 39). The most common reward was for return of property, no questions asked. Such rewards created relatively little incentives or opportunity for prosecution of innocent citizens since payment of the reward typically required the return of property.

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environmental citizen suits, since suits were mostly directed at the technical and permit limit

violations of the CWA, several of the more recent suits instigated by economic interests (e.g., waste

disposal firms or the environmental groups they create or fund, labor unions), such as those directed

at cement kiln firms discussed above, can probably be so characterized. Furthermore, the threat of

citizen suits over relatively meaningless (in terms of environmental damage) technical violations of

environmental statutes certainly is being used to extort payments.

Private prosecution through qui tam suits also has a long history in England, as victims were

expected to pursue prosecution of criminal offenders (Benson 1990, 1998). This was also the case in

the environmental area. Richard II and Parliament passed a water pollution statute (Stat. 12 Rich.II

ch. 13 (1388)) regarding the dumping of garbage and other filth into ditches, rivers and other waters

(Blomquist 1988: 363; Boyer and Meidinger 1985: 953-954), which established a private informer

role in prosecution. Subsequently, the use of common informers as prosecutors made a large number

of offenses enforceable. Private actions could be brought against violators of price regulations, for

instance, as well as regulations specifying characteristics of products. Similarly, violations of

occupationally licensing rules, tax laws, laws against various vices (e.g., gambling), and so on. As

Bloomquist (1988: 364, citing Boyer and Meidinger 1985: 954) notes, "Several features of these

common informer statutes led to abuse and eventual abolition of qui tam suits in England." 96 For

one thing, most of the qui tam suits were brought against what might be called victimless crimes.

Note that many environmental citizen suits are similar in this regard, since they can be brought for

technical violations which have no measurable environmental consequences, by individuals who

have not been directly impacted by the violations. Another problem was that these common

96 Recall the discussion above of the so-called democratic benefits of citizen-suit provisions, and the suggestion that if those and/or any of the other alleged benefits actually arise, they should also apply in many other areas of law enforcement, including the ones listed above for which qui tam procedures were once used. The fact that such private prosecution once characterized all of these areas and that such prosecution has been discontinued, certainly does not prove that such private prosecution is undesirable, given the interest-group government process, but it should suggest concern about the citizen-suit provisions of environmental statutes.

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informer statutes can generally be characterized as overtly biased against some classes (e.g., the

poor). The environmental justice movement claims the same bias in environmental statutes and the

use of citizen suits. In addition, it was increasingly recognized that the use of qui tam suits led to

excess enforcement, and this in turn created disrespect for the laws that allowed such suits as well as

for their enforcers. The contention here, as well as in Greve (1990), Adler (2001a), Bloomquist

(1988) and elsewhere, is that environmental citizen suits also lead to excessive enforcement.

Bloomquist (1988: 365) and Boyer and Meidinger (1985: 954) both quote Radzinowicz (1982: 139)

in this regard, as Radzinowicz explained that the private parties using qui tam suits were perceived,

not as "legitimate spokespersons for the public interest but rather as 'unprincipled pettifoggers' whose

office [was] a nuisance and 'an instrument of individual extortion, caprice and tyranny.'" Garth, et al.

(1988) suggest that the self interest motives of private attorneys general have also been recognized

(indeed, they contend that this recognition has lead supporters of private attorneys general powers to

propose efficiency gains from privatization as a rational, as public interest rational are no longer

sufficient). While there may be no direct evidence that those engaged in enforcement of the

environmental statutes (e.g., the environmental groups engaged in citizen suits) are losing support

because of this excessive enforcement, the votes in recent elections do indicate that environmental

concerns probably are not nearly as significant for the majority of voters as they used to be.

Qui tam suits also have a history in American law, dating back to the colonial period.

Private informers could enforce various tax and tariff laws through most of the nineteenth

century, for instance (Greve 1990: 343). The False Claim Act also authorized the use of qui tam

suits against government contractors accused of fraud. Problems similar to those in England

developed, however, and states began curbing the use of such procedures, or eliminating them all

together (Bloomquist 1988: 365, Note 1972: 97). By the mid-1900s, qui tam proceedings were

severely restricted and little used. Greve (1990: 343-344) notes that the limits on qui tam make

intuitive sense:

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Private citizens are generally competent judges of their own rights and interests. Therefore, they can be relied upon to right the wrongs that are done to them, such as breaches of contract, torts, or trespass. But, private citizens are terrible at judging the interests of others, including (and especitially 'public interests. Private enforcers do not simply make wrong guesses about interests other than there own. They hunt for bounties and do not care about the societal consequences of their actions.

Thus, when environmentalists attempted to revive qui tam suits (while the CAA was being

considered by Congress) by bringing actions under the Rivers and Harbors Act of 1899, the

courts did not accept the argument that this act authorized qui tam suits (Bloomquist 1988:

366).97 Congress took care of this roadblock by authorizing citizen suits in the CAA, of course.

Given the similarity between citizen suits and qui tam prosecution, it appears that the courts were

justified in their refusal to allow such actions, and that Congress has created a process

characterized by inefficiency, wasteful wealth transfers, and the granting of anti-democratic

privileges.

III. 5: It must be Extortion! Greve (1990) addressed some of the same arguments that

have been provided in support of citizen suit provisions and concluded “that all plausible

rationales and rationalizations of citizen suits are untenable. Ultimately, citizen suit provisions,

as currently written, are based upon inconsistent and incompatible rationales, and fall far short of

promoting the purposes they are ostensibly intended to serve” (1990: 367). The preceding

presentation clearly implies the same kinds of conclusions even as the set of alleged rationales is

expanded, and others have reached similar conclusions (e.g., Cross 1989; Adler 2001; Barnett and

Terrell 2001). Cross (1989: 71) suggests that “One need not characterize these private recoveries

[from citizen suits and their settlements] as extortion to recognize how they subvert the intended

scheme of citizen suits.” However, it appears that the rhetorical justifications for citizen suit

provisions that have been offered by their supporters are not valid, so the power granted to private

97 See: Connecticut Action N.O.W., Inc. v. Roberts Plating Co. Inc., 457 F.2d 81, 83-84 (2d Cir. 1972); Bass Anglers Sportsman Society v. Koppers Co., 447 F.2d 1304 (5th Cir. 1971); Gerbing v. ITT-Rayonier, Inc., 332 F. Supp. 309, 310 (M.D. Fla. 1971); Mitchell v. Tenneco Chemicals, Inc., 311 F. Supp. 1031, 1033 (D.S.C. 1971); Enquist v. Quaker Oats Co., 327 F. Supp. 347, 348 (D. Neb. 1971); United State ex

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attorneys general is undue. Therefore, it is appropriate to characterize them as extortion. Even if

it was not the initial intent of Congress, it was clear by 1990 that “In purpose and effect, citizen

suit provisions are an off-budget entitlement program for the environmental movement” (Greve

1990: 341). Furthermore, citizen suit provisions are now also being taken advantage of by others

(e.g., waste incinerator firms, unions) with even more direct economic interests at stake. The

same general conclusion appears to apply to other legal developments in the environmental area,

and not just to legal changes mandated by Congress. Common law judges may not have

anticipated the consequences of new rules (precedents) that have been created in tort law, for

instance, but they clearly now know that these changes have allowed members of a very powerful

political interest group, the trial lawyers, to extort money from firms by pursing enforcement of

environmental law.

IV. Tort Law as a Basis for Private Attorneys General and Environmental Extortion

The ability of politically influential groups to manipulate legislation and influence

regulation in pursuit of self-interests has been widely recognized for a long time, as suggested

above, but it is often assumed that the common law is not susceptible to such manipulation.98 It

is becoming increasingly apparent that the common law can be used as a wealth transfer

mechanism, however, particularly in the area of tort law (Epstein 1988, Rubin and Bailey 1994,

Benson 1996). Indeed, the use of tort law to extort money and property has become increasingly

attractive for trial lawyers, as precedent (and statute) law has evolved over the last several

decades.

Tort law use to have a very clear and obvious purpose. It was employed to compensate

the victim of a wrongdoing, whether intentional or due to negligence, for the harms that the

victim endured. Indeed, three required elements once characterized a successful tort action under

rel. Mattson v. Northwestern Paper Co., 327 F. Supp. 387, 388 (D. Neb. 1971); United States v. Florida-Vanderbilt Development Corp., 326 F. Supp. 289, 291 (S.D. Fla. 1971).

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common law: (1) a breach of duty owed to the plaintiff by the defendant (e.g., carelessness or

negligence), (2) a measurable harm suffered by the plaintiff, and (3) evidence that the breach of

duty was in fact a proximate cause of the harm. Lack of any of these elements meant that there

were no grounds for tort action. However, this characterization of tort law no longer holds.99

Tort actions can still be used for securing compensation for someone harmed due to another

person’s negligence, but it is being used for much more than that today. It has become a tool for

predation and extortion, as the courts in many jurisdictions have undermined all three of the

traditional elements listed above. For instance, there has been a steady movement away from the

negligence or fault standard of liability (e.g., the requirement of a breach of duty for care) toward

a standard of strict liability, particularly in the product liability arena.100 Under strict liability,

producers are liable for harms to users even if they are not negligent. In some jurisdictions

various defenses against strict liability have been accepted, such as "assumption of risk" (when a

consumer is warned and ignores the warning), but courts in some states have been much more

reluctant to accept such defenses than others.101 Thus, today in many jurisdictions, a defendant

can be held liable for harms regardless of whether any legal duty to the plaintiff is breached.

98 For instance, consider the “law-and-economics” literature on the efficiency of the common law (Rubin 1977; Priest 1977; Landes and Posner 1977), but see Aranson (1986) and Benson (2001) for counter arguments. 99 See Benson (1996) for a relatively brief discussion of the key changes in common law precedent, and for more detail, see Pope and Del Giorno (1991), Brenner (1989), and Forcier (1994).

100 See Greenman v Yuba Power Products, Inc., 59 Cal. 2d. 57, 377 P.2d 897 (1963). Manufacturers use to owe a duty of care only to those who purchased a product from the manufacturer. Indeed, product liability issues were matters of contract law, not tort law (Forcier 1994). Beginning in 1916 with MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916), the duty of care gradually expanded to include those who purchase from others in the contractually-linked distribution chain (e.g., retailers). For instance, an important 1960 Supreme Court of New Jersey decision, Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960), ruled that the manufacturer's duty was owed to anyone who was likely to use or be exposed to the product. Perhaps even more significantly, the court ruled in Henningsen, for the first time in a product case, that the manufacturer was liable under an "implied warranty principle" (Forcier 1994: 48), despite the lack of any convincing evidence of negligence by the manufacturer, or of any defect, and no expressed contractual warranty covering the claimed failure of the product. This implied warranty principle was part of a movement away from the negligence or fault standard of liability (e.g., a breach of duty for care) toward a standard of strict liability, as in Greenman. 101 See Williams v. Brown Manufacturing Co., 45 Ill. 2d 418; 261 N.E.2d 305 (1970 Ill). Other defenses that have been successful in some jurisdictions include claims of "unforeseeable misuse" ((Daniell v. Ford Motor Co., 581 F. Supp. 728 (1984 U.S. Dist.), but also see Cryts v. Ford Motor Co., 571 S.W.2d 683

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Similarly, a successful tort action used to lead to compensatory damages paid to the

plaintiff for predictable categories of measurable harms. After Dillon v. Legg, 68 Cal. 2d 728,

441 P.2d 912 (1968), in California, however, courts began to allow plaintiffs to recover for

emotional distress. While there are state courts that still demand evidence of some physical

manifestation of harm,102 several states have completely abandoned such requirements.103 For

instance, "it is an increasing trend for the courts to award damages for fear of future illness" due

to exposure to a potentially toxic product (Pope and Del Giorno 1991: 495). As Pope and Del

Giorno (1991: 503) concluded, "While these holdings may appear to be progressive and

compassionate, in reality they threaten to contaminate ... tort litigation with frivolous and feigned

claims. Allowing recovery for these claims may provide windfalls for plaintiffs who may never

be actually injured, thereby depleting resources for those with actual damages." After all, as the

determination of damages has become much more subjective and uncertain, damage awards have

also grown dramatically in some jurisdictions (and plaintiffs seek out to those jurisdictions, as

noted below).

Punitive damages exceeding the losses of the plaintiff are also being awarded with

increasing frequency in some jurisdictions, particularly when the defendant is a business. When

first introduced, punitive damages generally applied only for intentional torts, but such awards are

rapidly being extended to other torts, including many involving strict liability where no fault is

evident, let alone intent. In fact, in some jurisdictions, a firm can be punished when no

(1978 Mo. App.)) and "comparative negligence" (Murray v. Fairbanks Morse, 610 F.2d 149 (1979 U.S. App.)). 102 For instance, see Payton v. Abbott Labs, 386 Mass 540, 437 N.E.2d 171, 181 (1982), and Ball v. Joy Manufacturing Co., 55 F.Supp 1344 (S.D. W.Va. 1990), aff'd sub nom. Ball v. Joy Technologies Inc., 1991 WL 146815 (4th Cir. 1991).

103 See for example, see Potter v. Firestone Tire and Rubber Co. 274 Cal. Rptr. 885 (Ca. App. 1990), review granted, 278 Cal. Rptr. 836, 806 P.2d 308 (Cal. 1991); Herber v. Johns-Manville Corp., 785 F.2d 79 (3d Cir. 1986); Wetherill v. University of Chicago, 565 F.Supp. 1553 (N.D. Ill. 1983); Wells v Ortho Pharmaceutical, 615 F. Supp. 262 (N.D. Ga. 1985); Laxton v. Orkin Exterminating Co., 639 S.W.2d 431 (Tenn. 1982); In re Moorenovich, 634 F.Supp. 634 (D. Me. 1986); Sterling v. Velsicol Chemical Corp. 855 F.2d 1188 (6th Cir. 1988).

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significant harm has been demonstrated. For instance, an Illinois jury found no credible evidence

of physical harm in Kemner v. Monsanto, No. 80-L-970 (Cir. Ct., St. Clair City, Ill. 1987), so

they returned a verdict of $1 in compensation, but they then awarded $16 million in punitive

damages (Huber 1992: 728). Punitive damages can be especially devastating for firms involved in

large numbers of cases alleging the same harm-causing action in several different common-law

jurisdictions.104

Historically, a preponderance of evidence establishing that the defendant's action was a

"cause-in-fact" of the plaintiff's harm was a necessary but not a sufficient condition for damage

awards. An action was considered to have been the cause-in-fact of a harm if the harm would not

have occurred "but-for" the action. Today, however, many courts consider evidence that the

defendant's action “might be” a factor in producing the harm as sufficient, as evidenced by

statistical, epidemiological or experimental evidence rather than the much more particularistic

evidence that used to be required. In Jackson v. Johns-Manville Corp., 727 F.2d 506, 516 (5th

Cir. 1984), cert. denied, 106 S. Ct. 3339 (1985), for instance, it was stated that the preponderance

rule "provides an 'all or nothing' approach, whereby the plaintiff becomes entitled to full

compensation for those ... damages that are proven to be 'probable' (a greater than fifty percent

chance)."105 The statistical, epidemiological or experimental evidence clearly does not have to be

very strong either, at least by any scientific standards. For instance, in affirming the lower court

104 Indeed, tort defendants have raised constitutional objections to repetitive punitive damages, but to no avail. For instance, the federal district court of New Jersey held in Juzwin v. Amtorg Trading Corp., 705 F.Supp. 1053 (D.N.J. 1989); 718 F.Supp. 1233 (D.N.J. 1989), vacating 705 F.Supp. 1053 (D.N.J. 1989), that the imposition of multiple punitive damages violated the due process clause of the fourteenth amendment; however, the court also concluded that it was powerless to shape a remedy to this problem, and that it would be unfair to plaintiffs to implement such a ruling retroactively. The same arguments were rejected in Man v. Raymark Industries, 728 F. Supp. 1461 (D. Haw. 1989), however, and the defendant's actions in Tetuan v. A. H. Robins Co., 241 Kan. 441, 738 P.2d 1210 (1987) were viewed to be a series of different wrongs rather than a single wrong, thereby avoiding the constitutional claims. 105 Brenner (1989: 789) points out that the issue of causation is treated differently in some states than in others. Under the "strong" version, statistical correlation indicating that the probability exceeds fifty percent is not sufficient - some particularistic proof of direct and actual knowledge of the causal relation is required (Namm v. Charles E. Frosst & Co., 178 N.J. Sper. 19, 427 A.2d 1121, 1125 (App. Div. 1981)). The weak version allows a verdict for the plaintiff based solely on statistical probability (In re Agent Orange Product Liability Litigation., 597 F. Supp. 740, 835 (E.D.N.Y. 1984)).

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verdict awarding $5.1 million for congenital injuries allegedly from a spermicide in Wells v.

Ortho Pharmaceutical Corporation, 615 F. Supp. 262, 266-67 (N.D. Ga. 1985), aff'd, 788 F.2d

741 (11th Cir. 1986), at 745, the court of appeals stated that "it does not matter in terms of

deciding the case that the medical community might require more research and evidence before

conclusively resolving the question." Yet, the study upon which this decision was based

explicitly stated that the results were tentative, and in fact, subsequent research has failed to

support the findings (Huber 1992, pp. 724-725). Indeed, substantial, and perhaps overwhelming

evidence now suggests that spermicides are not teratogenic. Numerous other examples can be

cited, leading some observers to characterize the evidence in such torts as "junk science" (Huber

1992: 724-737; Spyridon 1991: 298-313).

Furthermore, in the past, an inability to link a specific breach of duty to a specific harm

would have prevented a damage award, but today if a group of defendants can be identified

whose actions may have been the source of the alleged harm, then in some jurisdictions, damages

can be apportioned among the group. In Sindell v. Abbott Laboratories, 26 Cal. 3d 588, 607 P.2d

924 (1980), for instance, the California supreme court ruled that when there are innocent

plaintiffs and negligent defendants and when the defendants are better able to bear the costs from

the accident than the plaintiffs, then the plaintiffs should be able to recover even if they cannot

identify who actually caused the harm.106 Therefore, the court proposed that liability be assigned

among the defendants in proportion to the companies' market shares of the product at the time

that the harmful exposure occurred.107

106 The idea that a firm is 'better able to bear the cost' has been justified in the California courts by arguments about insurance costs or risk spreading through slightly higher prices [see for example, Greenman v Yuba Power Products, Inc., 59 Cal. 2d. 57, 377 P.2d 897 (1963), implying that placing liability on firms is the efficient allocation of these costs, but actually a "deep pocket" criteria is probably being applied. 107 However, in Namm v. Charles E. Frost & Co. the court held that the Sindell theory of enterprise liability would "result in total abandonment of the well settled principle that manufacturers are only responsible for damages caused by a defective product upon proof that the product was defective and that the defect arose while the product was in the control of the defendant." In Payton v. Abbott Labs, 386 Mass. 540, 437 N.E.2d 171 (1982), the court was willing to use market shares as long as each defendant was held liable for the portion of damages caused to the total injured population. Other states have also

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Individual consideration of many of the changes alluded to above might lead a reasonable

person to conclude that the individual change seems appropriate, but when all of the changes are

considered together it becomes clear that the incentives to file tort suits have increased

tremendously. A plaintiff may be able to collect even if she does not prove negligence on the part

of the defendant, even if she is not able to demonstrate that she has suffered any tangible harm,

and/or even if she cannot show that the actions of the defendant caused the alleged harm. Thus, it

is easier for plaintiffs to win, and on top of that, payments to plaintiffs appear to be increasing.

But there is yet another development in tort law that makes all of the changes discussed above

even more significant, at least for many plaintiff attorneys: the willingness of courts to consider

mass tort claims arising through class action suits or court-ordered mass consolidations. This

development has provided lawyers with a means of extorting large settlements from defendants,

resulting in huge contingency fee awards to these plaintiff attorneys.

The potential for class action law suits has existed in the common law since the medieval

period, “But the current controversy over class actions roared to life in 1966 when Rule 23, the

procedural rule that provides for class actions in federal courts was significantly revised”

(Hensler, et al. 1999: 1).108 Prior to this, all individuals represented in a class action had to sign

an affirmation, intentionally opting into the plaintiff group, but after the 1966 rule change,

lawyers could claim to represent all potential plaintiffs in a class except those who had explicitly

withdrawn: “Overnight the scope of money damage lawsuits – and hence the financial exposure

of the corporations against whom they usually were brought – multiplied many times” (Hensler et

al. 1999: 1). State courts revised their procedural rules in the same way over the next decade, and

many interpreted the new rule “expansively”. This has created the opportunity for lawyers to

adopted modified versions of enterprise liability or market share theories - see George v. Parke-Davis, 107 Wash. 2d 584, 733 P.2d 507 (1987); Collins v. Eli Lilly & Co., 116 Wis. 2d 166, 342 N.W. 2d 37 (1984); and Abel v. Eli Lilly & Co., 48 Mich. 311, 343 N.W. 2d 164 (1984).

108 See Issacharoff and Witt (2005) for a discussion of the modern development of class action processes.

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designate and claim to represent an unorganized class of individuals as plaintiffs, thus acting as

private attorneys general.

When the concept of private attorneys general first began to develop,109 the justification

offered was that they were “the antidote to inequality and the new source of balance” for groups

“underrepresented” in representative democracy (Garth, et al. 1988: 359).110 However, Garth, et

al. (1988: 360) explain that this justification for private attorneys general had “lost its consensus”

by 1980.111 The incentives to pursue class actions fall almost entirely on plaintiff attorneys, and

despite their headline generating public interest rhetoric,112 as Coffee (1989: 683-684) explains,

“one better understands the behavior of the plaintiff’s attorney in class and derivative actions if

one views him not as an agent, but more as an entrepreneur…” After all, most of the individuals

allegedly represented in many class actions have very small stakes in the litigation. In fact, many

of them do not even learn about the class action until the case is almost over (Hensler et al. 1999:

9). In contrast, "When class action lawsuits are successful, they may yield enormous fees for

attorneys because fees are usually calculated as a percentage of the total dollars paid by

defendants. So attorneys have substantial incentives to seek out opportunities for litigation, rather

109 See note 3 above. 110 Note the similarity to some of the justification for citizen suits discussed in Section III above. Indeed, this image provided at least some of the impetus for the financial support of “public interest law” by government and large foundations that began to develop in the 1960s, and that the large environmental groups discussed above who have been active in citizen suits were able to take advantage of. 111 The most widely cited private attorney general case, Newman v. Piggie Park, 390 U.S. 400, 401 (1968) employed this “market image” to justify awards of attorney fees to successful plaintiff lawyers. Essentially, the rational is that competent council must be attracted to cases where the individual members of a group of potential plaintiffs, whether organized as in the citizen suit cases discussed above or unorganized, would not be in a position to obtain legal representation. When the court backed off this view in Alyeska Pipeline Service Co. v. Wilderness Society, 421, U.S. 240 (1975), holding that the private attorney general approach does not justify awarding of attorney fees, since only Congress can authorize this exception to precedent (the “American Rule”), Congress quickly passed the Civil Rights Attorney’s Fee Award Act (1976), however, and as noted above, the various environmental statutes also explicitly authorize attorney-fee awards. 112 Mass tort lawyers engage in the same sort of rhetorical obfuscation and justification practices as Section III suggests that interest group advocates and politicians do, and not surprisingly, political activists and tort lawyers have formed natural alliances when opportunities arise. Consider the tobacco and gun cases, for instance (Erichson 2000, 2005). An expanding degree of cooperation between the plaintiffs’ bar and the so-called “public-interest” community (environmental groups, as well as consumer groups, civil rights groups, etc.) is evidenced by the Trial Lawyers for Public Justice organization, which provides trial lawyers with litigation opportunities (Dillon and Shroeder 1997).

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than waiting for clients to come to them" (Hensler, et al. 1999: 9). Indeed, class action lawyers

have extensive monitoring strategies so they can detect situations that provide attractive litigation

opportunities. Opportunities are particularly attractive if a lawyer can litigate several class action

lawsuits over the same general type of harm. This might be achieved by suing different

defendants or by filing the same basic case in multiple jurisdictions.

The courts clearly recognize that the incentives facing plaintiff lawyers is driving the

class action expansion. For instance, in the Deposit Guaranty National Bank v. Roper, 445 U.S.

326, 339 (1980) at 338, Chief Justice Burger wrote “Plainly there has been a growth of litigation

stimulated by contingent fee agreements and an enlargement of the role this type of fee

arrangement has played in vindicating the rights of individuals who otherwise might not consider

it worth the candle to embark on litigation …. For better or worse, the financial incentives that

class actions offer to the legal profession is a natural outgrowth of the increasing reliance on the

‘private attorney general’…” Indeed, much of the debate in the 1980s about private attorneys

general focused on the magnitude of attorney fee incentives and the potential for "windfall" fees

rather than simply fees adequate enough to attract competent representation (Garth, et al. 1988:

362). Additional changes in precedent in many common law jurisdictions, and the resulting

magnitude of attorney fees in many class actions today suggest an answer: attorneys are often

able to extort windfalls.113

113 This has been recognized for some time. For instance, a renowned Second Circuit judge characterized class action settlements as "blackmail settlements" in a lecture given in 1972, later published as part of a book (Friendly 1973: 120). Friendly cited Handler (1971: 1,9) for support of this view. In addition, see for example, Weiss and White (2004: 53-56), who hypothesize that "Delaware law provides plaintiffs' attorneys with substantial incentives to initiate, prosecute and settle merger-related class actions in a manner that advances their own economic interests, rather than the interests of shareholders that they purport to represent" and conclude that "the plaintiff 's bar … responded to these incentives in a predictably self-interested fashion…. Merger-related class actions have become the dominant form of shareholder litigation in Delaware. Such actions … serve primarily as devices that enrich plaintiffs' attorneys while providing shareholders with little in the way of meaningful benefits…. All but a few non-monetary settlements [in merger related class actions under Delaware law] appear to be the product of plaintiffs' attorneys' ability to impose or threaten to impose litigation costs on defendants." Also see, for example, Schonbrun (2003), and several references cited below in conjunction with the discussion of asbestos tort. Several federal judges also agree with the blackmail/extortion view of many class action suits [see, for instance, In re Rhone-Poulenc Rorer, Inc., 51 F. 3rd 1293, 1299-1300, 1304 (7th Cir. 1995); In re

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The developments in class action tort have been accompanied by the emergence of

"repeat play specialists" in both the plaintiff and defense bar, as well as "privatized mechanisms

of settlement that take classes of claimants as aggregates and develop mechanisms for the

settlement on claims at the wholesale rather than the retail level" (Issacharoff and Witt 2005: 2,

4). Once a plaintiff attorney gets a class certified, that attorney has obtained "exclusivity of

representation on a non-contractual basis [and this]… exclusivity of the class action, in turn,

defeats the markets in mature claims that have so long characterized American tort law"

(Issacharoff and Witt 2005: 61). The potential for a market in claims representation in which

attorneys compete for clients, perhaps on the basis of price (e.g., contingency fee arrangements),

or quality of representation, is replaced by state-created monopolized class representation

(Issacharoff and Witt 2005: 6, 61).

As class action attorneys test and push the boundaries of the law, the law often changes.

In this context, an important step in the evolution of the class-action rules came in the 1980s,

through court rulings in tort cases regarding asbestos (see below for additional discussion). The

courts in some jurisdictions were inundated by thousands of lawsuits by workers claiming harms

from asbestos used in shipyards, petrochemical plants, and other types of industries, as noted

below, and as Hensler, et al. explain (1999: 1), this "litigation was characterized by features not

seen before then: large numbers of individual lawsuits, litigated in coordinated fashion by a small

number of plaintiff law firms, against a small number of defendants, before a few judges."

Lawyers and judges attempted to relieve the pressure of litigation demands by aggregating the

cases, but in doing so, "the balance of power between individual tort lawyers and corporate

Bridgestone/Firestone, Inc., 288 F.3d 1012 (7th Cir. 2002); West v. Prudential Sec., Inc., 282 F.3d 935, 937 (7th Cir. 2002); Parker v. Times Warner Entertainment Co., 331 F.3d 13 (2d Cir 2001); Newton v. Merrill Lynch, 259 F. 3d 154, 164 (3d Cir. 2001); Castano v. American Tobacco Co., 84 F. 3d 734, 746 (5th Cir. 1996); In re General Motors Corpl Pick-Up Truck Fuel Tanks Products Liability Litigation, 55 F.3d 76, 784-85, 789 (3d Cir. 1995); Griffin v. GK Intelligent Systems, Inc., 196 F.R.D. 298, 305 (S.D. Tex. 2000); Marascalco v. International Computerized Orthokeratology Society, Inc., 181 F.R.D. 331, 339 n. 19 (N.D. Miss. 1998). However, these judges' views are clearly not accepted in several states, as explained below.

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defendants tilted … [to] organized networks of well-heeled tort lawyers" (Hensler, et al. 1991:1).

These attorneys quickly applied this tactic, and the money they earned [extracted] using it, to

other areas of tort litigation. Adding the opportunity to pursue mass torts on top of the other

changes in tort law discussed above, has exposed thousands of businesses to extortion by plaintiff

lawyers and some of their clients. Consider the fact that many courts are willing to award

damages for intangible harms such as fear of disease, for instance. This means that plaintiff

attorneys have strong incentives to include large numbers of asymptomatic plaintiffs in class

action suits because they realize that most defendants are going to be forced to settle. After all,

the judgments in such suits can involve huge compensatory damage awards along with millions in

punitive damages, forcing many firms into bankruptcy. Thus, "acting rationally, defendant's

counsel settle the aggregative [asbestos] claims even though many of them, and later most of

them, had little or no merit" (Brickman 2002). Indeed, courts in states like Louisiana, Texas,

West Virginia, Maryland, Massachusetts and Mississippi, that allow large class action suits, often

will rule against defendants on the basis of evidence presented about harms suffered by a small

portion of the class, with little evidence of any injury for most members of the class.

Not surprisingly, class action settlements generally provide for large attorney fees, thus

meeting the desires of the plaintiff attorneys. The settlements also must meet the desires of the

defense side, relative to their alternatives, of course. Naturally, they are worse off than they

would be if they were protected from the threat of class action suits, but given that such threats

exist, they often prefer to pay off the extortionist rather than resist and face actual litigation. That

is, they choose to settle because they would rather pay some money to end the suit quickly

(avoiding the ongoing disruptions and distress of the dispute as well as higher attorney fees for

their defense and for plaintiff attorneys if they lose at trial) and relatively cheaply (compared to

the litigation costs and possible court awards that could arise if the case goes to trial), with a

minimum of publicity. The specialized plaintiff attorneys, and the defendants (and defense

attorneys) are both likely to be repeat players, so they are familiar with the settlement process.

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Each has incentives to cooperate in the settlement at the expense of the non-repeat players: the

members of the class. Indeed, in many class actions, the class members themselves are not likely

to get very much at all, since the defense will only settle if the total payments to class members

and plaintiff attorneys is less than the anticipated cost of litigation, and the plaintiff attorneys are

not likely to bargain away their own fees to encourage such a settlement. Hensler, et al. (1999:

10) characterize such cases as “clientless litigation” and note that “incentives can produce

settlements that are arrived at without adequate investigation of facts and law and that create little

value for class members or society. For class counsel, the rewards are fees disproportionate to the

effort they actually invested in the case…. For society, however, there are substantial costs: lost

opportunities for deterrence (if class counsel settled to quickly and too cheaply), wasted resources

(if defendants settled simply to get rid of the lawsuit at an attractive price, rather than because the

case was meritorious), and – over the long run – increasing amounts of frivolous litigation as the

attraction of such lawsuits becomes apparent to an ever-increasing number of plaintiff lawyers”.

Unlike many class actions where members of the class receive trivial amounts of money

or coupons while lawyers receive hundreds of thousands and even millions in fees, however,

some mass torts are not “clientless”, in that actual plaintiffs may collect large sums themselves

(examples are discussed below). These suits do not eliminate the incentives for plaintiff lawyers

to extort money through settlement, of course. Indeed, the potential gains for plaintiffs

themselves inject additional incentives to practice of extortion. After all, the stakes in such class

actions can be huge. Furthermore, while some plaintiffs may have very strong claims to large

damage awards, others may have very weak claims. Plaintiffs with weak claims may be able to

join a class, however, and given the likelihood of a settlement when a defendant is facing a large

class, these individuals are often able to extract payments that are not merited. Settlements that

result in payments to such members of the class, who would not have been able to win in

individual lawsuits, generally mean that “class members whose claims have merit are likely to get

less than if they sued individually because mass tort settlements are often ‘capped’… Those class

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members with the most serious injuries and the strongest legal claims are likely to lose the most”

(Hensler, et al. 1999: 12). Thus, in such settlements, wealth is transferred, both from defendants

and from plaintiffs with serious tangible harms, to plaintiff attorneys and to plaintiffs with largely

meritless claims. When repeated suits are filed against defendants, they ultimately can reach a

point where they have nothing left to give away in a settlement. Thus, as Issacharoff and Witt

(2005: 49) suggest, "Monopolistic representation and long-tail, firm-killing liability … are the

features that distinguish the class action from the practices that have long characterized American

tort law."

IV.1. An Environmental Example. As Issacharoff and Witt (2005: 37) note, "Although

we could point to any number of mass harms in which claims are settled thousands at a time,

[reference to Erichson (2003) for "an account of the prevalence of such mass claims"] asbestos

remains the paradigmatic case." The first area of mass toxic tort litigation was asbestos, so the

activities in this area provide the best illustration the nature and potential extent of legalized

extortion through tort litigation. Asbestos was widely used in insulation products prior to the

early 1970s, in large part because of it is fire resistant. Indeed, asbestos probably saved

thousands of lives and huge property damages by preventing large numbers of fires. The EPA

began issuing warnings about asbestos in the early 1970s, however, contending that it should be

eradicated from all of the places where it had been installed.114 After all, "for decades, the EPA

has taken the lead in zero-tolerance policies toward any 'carcinogenic' substance" (Strassal 2001:

A14), and asbestos was known to cause some significant health problems, including

mesothelioma, when an individual breathes in heavy doses of asbestos fibers.115 Indeed, there can

114 The Occupation Health and Safety Administration (OSHA) also is involved with asbestos regulation, as it set a maximum limit of 5 asbestos fibers per cubic centimeter of air shortly after it was formed in 1970, with the standard scheduled to fall to 2 fibers in 1976 (White 2004). 115 Castleman (1984) provides a detailed chronology of asbestos related medical research. Among other things, he concluded that "asbestosis was by 1935 widely recognized as a mortal threat affecting a large fraction of those who had regularly worked with the material" (1984: 31). Furthermore, the most severe exposures were in Navy shipyards, and the Navy published "Minimal Requirements for Safety and Industrial Health in Contract Shipyards" in 1943 (the first of several reports) recommending segregation of dusty work, use of exhaust ventilation and respirators, and periodic medical exams; yet such precautions

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be no doubt that exposure to large doses of asbestos has caused severe health problems and

thousands of deaths. On the other hand, the potential harms from asbestos were clearly

exaggerated by the EPA, as the agency itself admitted in a 1992 report (Strassel 2001: A14).116

By then, however it was too late, as the EPA's "draconian approach has served to encourage

unfounded health scares, and created an environment in which people no longer make rational

decisions about health risks. It has also led to the nightmare of trial lawyers, lawsuits and

bankruptcies" (Strassel 2001: A14). Billions of dollars had already changed hands by 1992,

through tort litigation and settlements, and at least 40 companies had already gone bankrupt due

to asbestos tort. Furthermore, tort law precedent in several states was so well established by this

time, that the tide of asbestos litigation and bankruptcies could not be stopped.

Before the EPA's asbestos-eradication demands materialized and the changes in tort law

suggested above occurred, there was no discernable tort liability risk for asbestos producers

(Epstein 1982: 18). Proximate cause requirements meant that tort law would only compensate for

injuries to the actual purchasers in the distribution chain, so for example, employees of purchasers

could not make claims against the supplier (in part because they were compensated through

Workers' Compensation Insurance). However, as EPA regulations materialized and tort law

began to change, incentives to litigate claims alleging harm from asbestos increased, culminating

in 1973 with the case of Borel v. Fiberboard Paper Products Corp. [473 F.2d 1076 (5th Cir.

were not mandated and only some shipyards advised the use of respiratory protection (Castleman 1984: 166). Some effects of asbestos were not confirmed until the mid-1960s, of course (Epstein 1982: 18), and some alleged effects are still not confirmed, but the point is that the knowledge of asbestos related problems that existed was widely disseminated before most of the asbestos cases arose.

116 Following the collapse of the World Trade Center Towers on September 11, 2001, media reports that there had been asbestos in 40 floors of the north tower were followed by tests showing high asbestos levels in downtown Manhattan: "Faced with a public health scare that could have sent thousands in Manhattan fleeing the city or jamming hospitals, the EPA decided to cough up the truth about asbestos" (Strassel 2001: A14). EPA officials rushed to put out the message that the public was not in danger because asbestos was only harmful when high levels of exposure occurred, and that the EPA standard itself was "a stringent standard based on long-term exposure" (Strassel 2001: A14). See EPA (2003) for a recent discussion of the EPA's view of asbestos harms, stressing that long term exposure may be harmful, but also noting that a number of the harms from asbestos that have been alleged at various times over the last three decades do not have any scientific support.

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1973), cert. denied, 419 U.S. 839 (1974)]. In this case, a worker maintained a claim against an

asbestos manufacturer rather than his own employer, and the claim was upheld under the theory

of strict liability. "This case completely transformed the law" (Epstein 1982: 43). Indeed, as

Epstein (1982: 44) explains, "The retroactive nature of the duty not only renders the judicial

exercise pointless as a matter of deterrence, but also imposes on the firm the impossible task of

complying with a liability rule of which it could not have had any knowledge. The standard

practices of yesterday have become the source of liability today. Rules, like horses, should not be

changed in midstream."117

After the Borel decision, large numbers of additional claims were filed, and as these

claims have expanded, plaintiffs, and particularly, plaintiff attorneys have taken advantage of

virtually all of the changes in tort law discussed above. Indeed, many of those changes were

made in or reinforced by opinions written in asbestos litigation.118 As Brickman (2002: 3-4)

observes:

Having created a pot of gold, the next step in the development of asbestos litigation was to provide a path to the pot that would circumvent a major obstacle-tort law. Tort law, reduced to its paradigm, provides that if A injures B, B can sue A for the extent of his injuries. But, to prevail, B has to prove that A proximately caused the injury. Most asbestos litigation involves claims of exposure to asbestos products 15, 20, 30 or more years earlier at multiple work sites where many different asbestos-containing products were being used. Thus, problems of proof abound in this litigation. Nonetheless, the proximate cause obstacle was swept aside by creative lawyering... [endnote omitted] Instead of having to directly prove both exposure to specific products and causation, all that was required was testimony from somebody that Company A’s products were used at the work site, plus medical testimony that exposure could cause injury,[endnote omitted] plus a claim of significant injury, and the case could go to the jury, and the jury could do what juries do. But in adjusting the rules of evidence to meet the exigencies of asbestos cases, that is, in creating a result-driven evidentiary regime for cases where the fullest compensation for serious injury seemed merited, the appellate courts failed to confine the circumstantial hearsay evidence rule that they had created to cases of serious injury.

117 Epstein (1982: 44) emphasized the forum change from Worker's Compensation to the common-law courts. Here the focus is on the changes in tort law itself.

118 For instance, "asbestos has served as the focus for the Supreme Court's most important pronouncements on the procedural dimensions of mass torts" (Issacharoff and Witt 2005: 48). Other examples are discussed below.

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Almost immediately, special asbestos law was applied to cases of dubious injury and ultimately to cases, as we will see, with no injury.

The next step required for the increase in asbestos litigation was an expansion in the pool of

claimants (Beckman 2002: 4).

As one plaintiffs' lawyer explained to Erichson (2003: 536), "If you can't sign up enough

plaintiffs, the economics don't work." The most serious medical problem arising from asbestos is

mesothelioma (a cancer of the lining of the chest and abdomen). Asbestos is suspected to be the

only cause, and it is estimated that 2,000 to 2,500 people suffer from the disease each year

(Samuelson 2002). There are also some serious cases of asbestosis (a scaring of the lungs, that

reduces the capacity to breath). These are the only two diseases uniquely associated with

asbestos, but there are other types of lung and gastrointestinal diseases that probably are caused or

exacerbated by asbestos. Nonetheless, only about 4,000 malignancies per year could be clearly

linked to asbestos. As explained below, however, many times that number of plaintiffs file suits

each year seeking compensation for asbestos exposure. This difference reflects the success of

asbestos lawyers in developing the potential of compensation for intangible harms.

Approximately a million dollars was awarded to shipyard worker in Pascagoula,

Mississippi in 1982 who apparently was suffering from moderate asbestosis (Parloff 2002).

Importantly, however, the plaintiff's attorney successfully argued that his client should be

compensated for his fear of developing cancer as well, and part of this award was in

compensation for such fear. Since then, judges in several states have permitted similar awards,

either explicitly or implicitly "out of concern that a plaintiff who later does get cancer might be

either legally barred from bringing a second suit or might have no one left to collect from, the

defendants having all gone bankrupt by then" (Parloff 2002). As asymptomatic cases became

valuable, plaintiff lawyers began searching for plaintiffs who could claim reasons to fear of future

harms from asbestos exposure. For instance, about 50 percent of the individuals heavily exposed

to asbestos over a period of several years, develop “pleural plaques.” These deposits of collagen

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fibers, which appear 20 or more years after initial exposures as thickenings of the lining of the

lungs, are detectable by x-rays. As Beckman (2002: 4) explains, however, "The vast majority of

individuals with plaques have no lung impairment and no symptomatology whatsoever. For most,

is a totally benign condition." In fact, no scientific link between pleural plaques and any

asbestos-related disease has been established. The chances of getting a disease for someone with

plural plaques is no different than for someone with similar asbestos exposure and no plaques.

Beeckman notes that a leading pulmonologist actually has concluded that pleural plaques lower

the probability of contracting asbestosis, perhaps because the plaques are natural defensive

mechanism. Nonetheless, the presence of these plaques has been labeled a “disease” in some

states while some other states accept their existence as support for a “fear of cancer” claim. And

importantly, since plural plaques can be discovered by x-rays (as can actual asbestos diseases),

plaintiff attorneys have a means of recruiting plaintiffs (Parloff 2002). Organized mass

screenings have been used since the mid-1980s. Attorneys send vans equipped with radiographic

equipment to factories, and all workers who appear to be old enough to have been exposed ot

asbestos are invited to have an X-ray taken. Labor unions often cooperate in such programs, and

the workers chosen for exams are generally asked to sign retainer agreements with specified law

firms if the X-rays are interpreted to suggest signs of plural plaques or asbestos-related diseases.

The X-rays are read by designated radiologists working for the plaintiff lawyers. Parloff (2002)

explains that: "The opportunities for abuse … [are] were legion. The X-rays of hundreds of

screened tire workers who submitted claims in the mid-1980s to one now-bankrupt asbestos

defendant were subsequently reevaluated by independent academic researchers in a paper

published in November 1990. The researchers concluded that 'possibly 16, but more realistically

11 of the 439 tire workers evaluated may have a condition consistent with exposure to an

asbestiform mineral.'" In order to recruit large numbers of clients, the plaintiffs' bar became even

more specialized, developing a "hub-and-spoke structure in which referring lawyers remain

involved in a limited capacity in their clients' cases, serving as the primary client contact, while

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the lawyer to whom the cases were referred performs the bulk of the work in litigation and

negotiation" (Erichson 2003: 536).

Plaintiff attorneys also are able to choose among jurisdictions. Not surprisingly, claims

migrate to those states where compensation is available and likely to be relatively high (Hensler

et al. 1999: 7).119 Indeed, 85 percent of all asbestos cases are filed in ten states where defendants

face "hostile judges and juries" (Samuelson 2002). Among these, Mississippi, New York, Ohio,

Texas and West Virginia are the leaders. Carroll, et al. (2002) report that these five states

accounted for 66 percent of the filings between 1998 and 2000. Thus, pleural-plaque and fear-of-

cancer claims have been brought by the thousands and billions of dollars in compensation and

legal fees have been paid, often through settlements, as firms know that they are likely to lose

"even if the evidence is on their side" (Samuelson 2002). White (2003, 2004) reports the results

of a study using data on all asbestos claims since 1987. Plaintiffs win roughly 64 percent of all

asbestos trials, a high percentage relative to most other types of trials, and the average

compensatory damage award is $812,000 (1987 dollars). Plaintiffs in West Virginia and

Mississippi are 21 percentage points more likely to win than in a set of twenty states where the

courts do not have the reputation for favoring asbestos claimants. White also finds that the

expected value of a claim in a favorable jurisdiction is about $3 million more than in other

jurisdictions, and that the expected gain from grouping claims rather than pursuing them

individually is about $614,000.

Estimates suggest that between 67 and to 90 percent of the plaintiffs in asbestos cases

today are not medically impaired (Carroll, et al. 2002: 20). Indeed, in some states nonmalignant

119 Favored forums change over time. For instance, Texas was very attractive to plaintiffs in the 1990s, but then the state legislature limited punitive damages and restricted plaintiff lawyers' ability to select among Texas jurisdictions (White 2004). More recently, Madison County Illinois, as well as several counties in West Virginia and Mississippi have been attracting most asbestos suits. Mississippi is particularly attractive because the state does not limit either punitive or compensatory damages, lawyers can consolidate thousands of claims into single actions (as long as one plaintiff is a Mississippi resident), Mississippi courts do not have to approve the terms of mass settlements so legal fees are not subject to judicial review, and in some Mississippi counties, defendants are not allowed to verify disease claims by conducting their own examinations of plaintiffs (White 2004).

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cases now outnumber cancer cases by margins as wide as 47 to 1. On top of the large portion of

awards being made for intangible harms, asbestos cases also involve relatively large numbers of

punitive damage awards. White (2003) reports that about 17 percent of all damage awards in

asbestos trials during the 1987-2002 period included punitive damages (this is a much higher

portion than other types of tort litigation), and that the average punitive damage award

(conditional on punitive damages being awarded) is about $1.4 million. Such damages vary

across jurisdictions too, however, with plaintiffs in Mississippi, West Virginia, and Houston

being 30 to 37 percentage points more likely to be awarded punitive damages than the 20 states

that White (2003) uses as a comparison group, and plaintiffs in Madison County, Illinois being 85

percentage points more likely to receive punitive damages. These four jurisdictions also award

between $1.8 and $3.9 million more in punitive damages that the 20 comparison states when they

do award damages. White also found that when a defendant is judged to be liable for punitive

damages, they attract thousands of additional claims, and face much higher settlement costs.

Many different kinds of dust particles can cause inflammation and scaring of lung tissue,

and all such conditions are called interstitial or parenchymal fibrosis. When the fibrosis arises

from asbestos it is call asbestosis, but when it arises from exposure to some other particle it is

labeled differently (e.g., exposure to silica can result in silicosis), and "There is no difference in

these conditions - only the name is different" (Brickman 2002: 5). There are more than 130 types

of lung inflammations that resemble incipient or marginal asbestosis (Parloff 2002).

Furthermore, "Many of the men now being screened held numerous jobs in their lifetimes --

sandblasting, welding, painting -- each of which carries its own hazards to the lungs.

Consequently, asbestos defendants are very likely now paying compensation for every

occupational disease known to man." (Parloff 2002). Thus, even asbestosis claims are often

questionable. Similarly, White (2003) found that plaintiffs in asbestos tort cases are 11

percentage points more likely to win at trial if they are smokers, and these smokers receive an

average of $681,000 in compensatory damages. Not surprisingly, asbestosis diagnoses by

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medical experts employed by plaintiff attorneys have been challenged by defense experts. With

dueling experts, however, it is likely to be difficult for juries to determine what the actual cause

of an ailment is.120 These disputes between experts go beyond the issue of what might have

caused fibrosis, however. Brickman (2002: 5) points out that one Federal district court used a

neutral court-appointed medical team to examine 65 plaintiffs that had been diagnosed as having

asbestosis: "The neutral experts found that only 15% had asbestosis and 20% were unimpaired

but had pleural plaques. The remaining 65 % had no identifiable condition. If this example is

characteristic of asbestosis claiming, and there is good reason to believe that it is, then 70 % or

more of claims currently denominated as asbestosis are simply bogus."

During the early years of asbestos tort, many claims were probably for serious asbestos

related illnesses, generally arising from heavy exposure. For instance, prior to 1983, nearly all of

the personal-injury suits filed against asbestos firms were by naval shipyard workers121 and

miners, but that year, more that 60 plasterers who had worked on buildings insulated by asbestos

filed lawsuits (Chen 1984: 30), suggesting to a whole new set of potential plaintiffs that they

might be able to lay claim to the assets of asbestos producers. Similarly, a new area of asbestos

litigation began in 1982, known as "rip-out-and-replacement" cases (Chen 1984: 30), in which

asbestos suppliers and manufacturers are sued for the cost of replacing material that contain

asbestos (initially only schools were involved, but others soon followed). This removal process

120 Juries also are likely to get false information from plaintiffs (see note 69 below for related discussion). For instance, in one case [Dunn v. Owen-Corning Fibergalass, 774 F. Supp. 929 (D.V.I. 1991)] a plaintiff claiming to suffer from asbestosis testified that he was short of breath and he could not work or engage in many other activities. The judge in the trial became ill, forcing a mistrial. A new trial was convened with a different judge and jury, and during this trial, one of the jurors from first trial "voluntarily came forth and offered to testify that he happened to observe that same plaintiff outside the courtroom and that he exhibited none of the symptoms that he had displayed in the courtroom (of shortness of breath, and so on)" (Brickman 2002: 4). The judge would not allowed the former juror to testify, however, and the new jury awarded that plaintiff a million dollars in compensatory damages and $25 million in punitive damages. The judge reduced these awards to $500,000 and $2 million respectively, and they were further reduced through appeal, but the plaintiff and his attorneys still collected: "A claimant who almost certainly had no asbestos-related disease, no injury, no symptomatology, with additional and critical help from the judge, had been awarded huge sums by a jury" (Brickman 2002: 4).

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reflects the EPA's policies, of course. Indeed, a "tidal wave" of asbestos suits (Chen 1984: 32)

has materialized. The Rand Corporation reported that by 1984, the number of asbestos tort cases

in the United States had passed 30,000 (Hensler, et al. 1985), but filings have continued to be

added at an increasing rate every year. In 1992 the president of Keene Corporation reported that

there were more than 85,000 cases filed against his firm alone, with an additional 2,000 filings

every month, and that they had already settled 75,000 cases (Bailey 1992: 1). Similarly, Parloff

(2002) reported that there were 31,000 asbestos filings against a single defendant in 1999, 58,000

in 2000, and 91,000 in 2001, so over that three year period, annual filings against just one firm

almost tripled. By the end of 2000, over 600,000 plaintiffs had filed claims under asbestos tort

(Carroll, et al. 2002: vi).

Now consider who is getting the money that is changing hands through asbestos tort trials

and settlements. Of the 30,000 plus claims examined in the 1985 Rand study, only about 4,000

had received any compensation (Hensler, et al. 1985).122 The Rand study reported that those

4,000 plaintiffs had received about $400 million in payments but they netted $236 million in

compensation because the plaintiffs' lawyers had been paid around $164 million, or 41 % of the

payments to plaintiffs (Hensler, et al. 1985). In the meantime, defense lawyers had earned over

$600 million, including about $205 million in cases that had resulted in payments to plaintiffs and

$395 million to fight other claims by plaintiffs who had not been successful as of that date. Note

in this regard that asbestos cases all have multiple defendants. After all, workers can rarely

demonstrate that particular suppliers were the exclusive causes of their alleged harms (Chen

1984: 26). Thus, plaintiffs draw upon the court's willingness to apportion damages among a

group of potential tortfeasors. Indeed, given that willingness, "the prudent plaintiff will sue every

121 Asbestos was sprayed on the inside of ships as a fire retardant, and while the navy was aware of the dangers of the heavy exposure that resulted it did not warn workers; as in many cases, however, the government is protected from tort liability so manufactures were sued (Benson 1996). 122 Others presumably resulted in payments after the study period, but even when defendants prevail they bear substantial costs (and so do plaintiffs: although most of these cases are filed on a contingency fee basis, unsuccessful suits still cost plaintiffs a lot of time, anxiety, etc.).

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manufacturer that ever supplied any employer for whom he worked over the years" (Epstein

1982: 45). So, of the $1 billion that had changed hands by 1985, over 75 percent had gone to

plaintiff and defense lawyers.

A 1992 estimate suggested that asbestos litigation had resulted in $12 billion changing

hands with $9 billion going to legal fees (Bailey 1992: 2), implying that the distribution

discovered in the 1985 Rand report was still holding. Rand issued preliminary results of a new

study in 2002, however, reporting that the total money transferred in asbestos tort activity through

2000 had reached $54 billion, but that the share going to lawyers has fallen somewhat. Plaintiffs

were estimated to have netted about $21 billion after paying legal fees, with the other $33 billion,

about 63 percent of the total, spent in the litigation and negotiation processes (Carroll, et al.

2002); i.e., for the most part, captured by attorneys. This decline in the percentage going to

lawyers appears to reflect a reduction in direct defense expenditures, however, as defendants have

reduced their efforts to mount vigorous defenses in court. During the early years of asbestos tort,

defendants challenged causality issues (e.g., lack of evidence of cause in fact, proportioning of

damage awards among potential sources of asbestos exposure), compensation for intangible

harms (e.g., fear of cancer), punitive damage awards, and many of the other court rulings that

were changing precedent, but today, defendants are much more likely to simply settle. Perhaps

more importantly, settlement procedures between the repeat-player plaintiff and defense lawyers

have been worked out and stream lined.123 Of course, as the portion of money transfers

accounted for by direct legal costs to defendants have fallen, the percentage going to plaintiff

attorneys has apparently risen (Carroll, et al. 2002: figure on 62). After all, plaintiff

compensation payments have increased as a portion of the money being transferred, and

therefore, plaintiff attorneys’ contingency fees as a portion of these payments has increased.

123 Many of the disputes between the multiple defendants (e.g., regarding responsibility for the asbestos at various sites, insurance coverage issues) have been worked out over time.

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A spokesman for the trial lawyers association estimated that there are about 700 trial

lawyers engaged in asbestos litigation (Samuelson 2002: A25), so given the figures cited above,

the average per lawyer involved in asbestos tort is over $44 million, but there is considerable

variation in the actual returns to plaintiff attorneys. One documented settlement netted two

lawyers $125 million, or about $1 million a day for the time they spent on the case (Bailey 1992:

3), for instance. While this might be somewhat of an outlier, “Effective hourly rates for plaintiff

asbestos lawyers range from $1,000 an hour to $25,000 an hour” (Brickman 2002: 7). Average

contingency fees in asbestos tort are about 40 perence of plaintiff awards (Brinkman 2002), so a

lawyer that can represent a claim in the “right” state where large punitive damages and damages

for intangible harms are awarded can obtain a huge payment. Indeed, as Olsen (2003) explains,

the wealthiest lawyers in the U.S. today are almost all located in the area between Houston, Texas

and Pensacola, Florida, in part because the states of Texas, Louisiana, Mississippi, and Alabama

have been very generous to asbestos plaintiffs. Carroll, et al. (2002: 30) report that in 1995, ten

firms represented about 75 percent of the annual filings against asbestos defendants willing to

respond to their survey. Similarly, Issacharoff and Witt (2005: 53) suggest that along with the ten

dominant legal firms there are roughly forty more that account for almost all of the remaining

claims (Issacharoff and Witt 2005: 53). In fact, the leading plaintiff firms have negotiated

standing settlement agreements with many of the major defendants, as virtually all cases are now

settled (this was not always the case, however, as noted above). Thus, for instance, when a

lawyer for Owens Corning attempted to establish a "National Settlement Plan" in order keep the

company solvent and create a sustainable cash flow for asbestos claims, she found that she only

had to negotiate with fifty law firms to settle 176,000 pending claims (almost 90 percent of the

outstanding claims against Owens Corning at the time) (Issacharoff and Witt 2005: 54). Those

negotiations were completed in two months (the plan ultimately failed, but the point is that the

asbestos plaintiffs' bar involves a small number of highly specialized law firms).

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There were some 200 asbestos producers, and the average asbestos suit names at least 20

defendants who incur a share of the damages awarded (Chen 1984: 26). These multi-defendant

cases are one reason for the huge amount of money paid to defense attorneys, as noted above, but

in addition, a defendant typically had to hire defense attorneys in every legal jurisdiction in which

it is being sued. Johns-Manville, one of the largest asbestos manufacturers, employed sixty

different law firms around the country at one time, before declaring bankruptcy in 1982. Other

firms followed suit, and as the most obvious asbestos defendants were driven into bankruptcy

(see discussion below), Parloff (2002) explains that "second- and third-tier defendants began to

bear the brunt of the litigation." While there were only about 200 manufacturers of asbestos

products, over 8,000 companies have now been named as defendants in asbestos suites. The vast

majority of these defendants simply used asbestos products in making their own products. For

instance, a claim was filed against Ford Motor Company for $1.7 billion because of exposure to

asbestos used in its brakes (Parloff 2002), and claims are also pending against textile firms, the

pulp and paper industry, food and beverage firms, and firms like Babcock & Wilcox (makers of

boilers), W.R. Grace which used asbestos in fire-protection products and has paid out almost $2

billion as a result, Georgia-Pacific (for gypsum products made before 1977), Halliburton, General

Motors, Daimler Chrysler, Chiquita Brands, GE, and Sears.

Not only are plaintiffs pursuing increasingly peripheral defendants, but their lawyers have

been able to convince juries in the major asbestos-litigation states that defendants they never used

to sue are actually the primary source of harms.124 Consider a case involving railroad workers in

124 Part of the strategy employed by plaintiff attorneys is revealed by a Baron-&-Budd (an asbestos-plaintiff law firm) memo that was inadvertently included with other documents given to defense attorneys in 1997 as part of a deposition. The memo contained instructions given to defendants about how to prepare for their depositions. In part, it said (quoted in Perloff 2002):

You must be able to pronounce the product name correctly and know WHICH products are pipe covering, WHICH are insulating cements, and WHICH are plastic cements.... Have a family member quiz you until you know ALL the product names listed on your Work History Sheets by heart....

Do NOT mention product names that are not listed on your Work History Sheets. The defense attorneys will jump at a chance to blame your asbestos exposure on companies that were not sued in your case.

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Mississippi, for instance (Perloff 2002). A large number of defendants were initially involved in

the case but almost all of them settled before trial (many more potential defendants were not even

named since they had already gone bankrupt). Two defendants did not settle, however, and the

jury apportioned 80 percent of the award between the two defendants. One company, AC and S,

Inc. was ordered to pay 60 percent of the award, implying that it was responsible for 60 percent of

the damages. AC and S Inc. was a small insulation contractor from Pennsylvania that "never had

offices in Mississippi, never performed contracts at any of the sites where the plaintiff worked,

and sold few asbestos-containing products anywhere" (Perloff 2002). Nonetheless, AC and S was

order to pay six railroad workers $83.75 million. This award amounted to more than ten times

AC and S's net asset or equity value, and it exceeded the company's total cumulative earnings

over its 43 year history. While AC and S wanted to appeal, Perloff (2002) reported that it could

not afford the bond required by the court to do so (see discussion below).

By the mid-1980s plaintiff attorneys clearly had discovered that their chances of

collecting large fees increase when defendants faced large numbers of plaintiffs (a discovery

verified by White (2004)), so as noted above, they began grouping plaintiffs together in class

action suits and negotiating with defendants: "Often defendants would agree to settle all of the

You may be asked how you are able to recall so many product names. The best answer is

to say that you recall seeing the names on the containers or on the product itself. The more you thought about it, the more you remembered....

One of the partners in the legal firm claimed that none of the lawyers in the firm had ever seen the memo, and a paralegal for the firm ultimately signed an affidavit in which she took sole responsibility for writing it, but the partner also claimed that the memo did not actually counsel anything improper when considered in the context of other materials provided to the firm's plaintiffs advising them to tell the truth. Not all judges agreed, however. A state district judge referred the memo to a Dallas County grand jury for criminal investigation, for instance. On the other hand, "in civil proceedings, a panel of the state's appellate court concluded that the memo, while 'heavy-handed,' was not fraudulent. In fact, the court found, it was protected by the attorney-client privilege, so the asbestos defendants were barred from making any further inquiries about it" (Perloff 2002). This memo apparently reflects common practices, however. Since many plaintiffs allegedly came into contact with asbestos 20 to 30 years before their suits, for instance, they often cannot remember what the products were. Plaintiff law firms regularly show them pictures of product labels, tell them which products they are to testify that they remember using and information about how the product was used, which products they are to testify that they did not have contact with (the products of firms that are bankrupt), that they do not recall seeing warning labels, and what to say about their health conditions (they are educated and coached about the symptoms of asbestos related diseases) (Brickman 2002: 7-8).

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claims that were so grouped, including those claims that were questionable, to reduce their overall

costs of litigation. By agreeing to pay questionable smaller-valued claims in exchange for also

settling stronger and larger-value claims, defendants could also contain their financial risk"

(Carroll, et al. 2002: 23). Defendants also have incentives to settle in order to avoid the relatively

high risk of paying punitive damages at trial, in part because punitive damages are uninsurable

and in part because such damages attract large numbers of additional suits (White 2004). Mass

claims are also attractive to plaintiffs, particularly when they have weak claims, because plaintiff

injury claims are never verified when the parties settle. Plaintiff attorneys obviously benefit from

mass torts too because they are relatively likely to obtain a settlement that will include large

numbers of unimpaired claimants (or as White (2004) suggests, claims that are "fraudulent"), thus

increasing their contingency fees.

Mass asbestos torts also have became attractive to judges. In fact, as asbestos claims

began to inundate courts in certain states, judges followed the plaintiff lawyers' lead even when

large class actions were not aggregated by those lawyers. They "decided to build the equivalent

of superhighways to accommodate caseload congestion. By use of consolidations, class actions

and other aggregative techniques, courts began to dispose of cases by the tens, and then hundreds,

and then thousands, in single swoops" (Beckman 2002: 5). Many of these mass tort cases are

non-consensual consolidations.125 That is, as with class actions, the defendants do not have to

agree to the consolidation. In fact, defendants object strongly, in part because under mass

settlements or consolidated trials it is relatively easy for illegitimate claims to get lumped in with

legitimate claims. As Perloff (2002) explains, while "judges turned to jumbo consolidations in an

effort to get out from under their groaning caseloads, they may have unwittingly exacerbated the

problem. 'You think you're clearing your docket,' says David Bernick, a litigator at Chicago's

125 These consolidations are different from class action suits because if they go to trial the court (judge or jury) supposedly decides each claim separately. However, like class actions, they are dealt with as a group for all pre-trial purposes, and if a trial occurs, a large number of claims from the group are tried together.

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Kirkland & Ellis who represents three bankrupt asbestos defendants, 'but what you're doing is

you're widening the pipeline to the courthouse.'" West Virginia, Texas, and Mississippi courts

even allow out-of-state plaintiffs, many of whom have never lived in or worked the state, to be

among the class represented in such suits. Parloff (2002) discusses a case filed in rural Jefferson

County, Mississippi during July 1999, for instance, which involved approximately 9,100 asbestos

plaintiffs from all over the country. There were actually about 700 fewer residents in the county

than there were plaintiffs in the case.

To see how class actions and jumbo consolidations can be abused, consider the May-June

1998 trial in Fayette, Mississippi.126 The consolidation, referred to as the David Cosey Case,

involved more than 1,700 plaintiffs, but twelve plaintiffs were selected for the actual trial. The

jury verdict mandated $48.5 million in compensatory damages for just those 12 individuals.

Importantly, this included $2 million each for five plaintiffs who were apparently unimpaired by

any asbestos-related ailment. As the jury was in the process of deciding whether to impose

punitive damages on top of the $48.5 million in compensatory damages, most defendants met

with plaintiff attorneys and settled the 12 individuals' claims in hopes of avoiding even higher

payments and/or the cost of appeal. A few defendants refused to settle, however, so (Parloff

2002): "circuit judge Lamar Pickard telephoned their representatives, according to affidavits later

filed in the case. He allegedly advised those defendants that if they did not settle [the 12 claims

along with] the remaining 1,700 co-plaintiffs' claims within 30 days, he was considering

reconvening the same jury that had just ruled and having it set damages for all of their [other]

claims as well. He then allegedly implied that the defendants would not be able to appeal the

resulting aggregate verdict to the Mississippi Supreme Court, because they would not be able to

afford the appeal bond required under Mississippi law, which, at the time, had to cover 125% of

the total judgment." The hold-out defendants immediately agreed to settle the 12 claims,

As White (2004) notes, this increase the correlation across trial outcomes, making trials more risky, and therefore, adds to defendants' incentives to settle.

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although they were still reluctant to settle the remaining roughly 1,700 cases. Therefore, Judge

Pickard scheduled a group trial of 63 more plaintiffs' claims for October. The defendants filed an

emergency petition with the Mississippi Supreme Court, asking for Judge Pickard to be

disqualified for bias, as well as for other forms of relief, but the petition was denied five days

before the October trial was to begin, and the defendants agreed to settle all the remaining 1,700

claims.

Settlements are actually the norm in asbestos cases today, as suggested above. Indeed,

less than one percent of asbestos claims actually go to trial (White 2003). Between 1993 and

2001, for instance, of the hundreds of thousands of plaintiffs involved in asbestos tort, only 1,598

(in 527 trials) actually received jury verdicts (Carroll, et al. 2002: 56). Indeed, the settlement

process has become very streamlined, thus reducing the amount of legal fees going to defense

attorneys, as noted above. As Issacharoff and Witt (2005: 55-56) explain, each plaintiff's claim is

reduced to a common set of characteristics, such as length of exposure, symptoms, severity of any

disease, potential mitigating circumstances such as smoking history, and so on. Then all

members of the class are put into a grid of categories (an injury matrix) based on these

characteristics. The historical average payment for each grid point then can be calculated. This

can be and is done by large consulting firms, but it is also often carried out by lawyers

themselves, by drawing upon the electronic reference guide "What's it Worth." This guide,

provided through Lexis, contains a wide range of data on jury verdicts in asbestos cases. In

addition, "Short profiles then provide a baseline for appraisals of the value of individual claims at

dispute. [note omitted]. In disseminating such information, these constantly updated electronic

databases provide up-to-the-minute information for lawyers in prosecuting their claims or

defending their clients. They behave, in short, in a manner analogous to analysts for investment

banks: they provide information for specialists to apply their expertise and make a "bid" or offer

to which a counter-party responds" (Issacharoff and Witt 2005: 60). The plaintiff's bar goes even

126 See Parloff (2002) for more details.

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farther than this, however. After all, given that the successes in each case feeds into and

influences the calculations for subsequent cases and settlements, each member of the plaintiffs'

bar has incentives to assist other members in achieving large awards. Thus, for instance,

individual attorneys who were successful early in the development of asbestos tort, like Marvin

Belli, ran seminars for other plaintiffs' lawyers. This process has now been taken over by

Measley's, "a for-profit clearinghouse [which] offers seminars on asbestos litigation. Individual

sessions are devoted entirely to the valuation of claims, as well as to techniques that heighten

plaintiffs' chances of success. [note omitted] Results of the conference are then available for

purchase nationwide to interested members of the bar" (Issacharoff and Witt 2005: 60).

Defendants have incentives to settle in part because they are likely to lose at trial

(plaintiffs won in about two-thirds of the 527 trials that actually occurred between 1993 and 2001,

for instance, and White's (2003) data also suggests that 64 percent of plaintiffs win at trial). In

addition, settlements may look attractive since the average claim is settled for $3,520, compared

to the much larger average damage awards at trial that were discussed above (White 2003). This

reflects the fact that in mass settlements a large majority of the claimants are actually unimpaired,

however. Another inducement to settle is that all of a firms assets are vulnerable to extraction

through asbestos litigation (e.g., with punitive damages added to compensation for both tangible

and intangible harms), while a settlement might save some of those assets. Consider Keene

Corporation, for instance. It was not involved with asbestos in any of its activities at all until

1968 when it bought another company, Baldwin Ehret Hill (BEH). Fifteen percent of BEH's

products contained asbestos, although those products were only 10 percent asbestos, and BEH

was also putting warning labels on these asbestos-containing products. Thus, under the law of the

day, Keene had no reason to be concerned about tort liability due to BEH's asbestos use.

Furthermore, these asbestos sales constituted only two percent of Keene's sales until 1972 when

they stopped all asbestos production. Indeed, they spent $8 million for BEH, only to find that the

BEH subsidiary was a money loser, so they shut the entire operation down in 1975. Nonetheless,

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between 1975 and 1992 they paid out $400 million on BEH asbestos related litigation expenses.

Keene declared bankruptcy in 1993,127 but it was not the first asbestos producer or user to face

bankruptcy, as noted above, and it would not be the last.

As Issacharoff and Witt (2005: 62) note, "the inability of many firms to internalize the

costs of mass torts on a going forward basis requires settlements that close out liabilities for the

future." In asbestos tort, one way to close out at least some future liabilities has been to turning

away from tort law to the bankruptcy courts in an effort to clarify their asbestos liabilities (Bailey

1992: 3). For instance, one of the first asbestos defendants to declare bankruptcy was Johns-

Manville.128 The bankruptcy case and reorganization took over 6 years to accomplish, during

which time, no claims were paid. The settlement required Manville (the new name of the

company) to establish a trust that would ultimately be able to pay out $2.5 Billion to asbestos

claimants and another trust to pay schools, hospitals and businesses for asbestos removal (Cohn

and Bollier 1991: 131). Manville won on the issues of paying only compensation, not punitive

damages, and on instituting a mandatory settlement procedure to be followed before litigation

against the trust can be waged. Furthermore, their liability was limited so they have no obligation

to fully pay all claims that may eventually materialize. The bankruptcy court also approved

payments of $102 million to lawyers, accountants and investment bankers involved in the

bankruptcy proceedings. So bankruptcy was not cheap for Manville, but it secured much more

corporate income than they would have been able to otherwise claim. By 1990, for instance,

127 Under the Bankruptcy Reform Act of 1978, which created Chapter 11 proceedings, the court can estimate the value of claims against a company seeking relief, including all legal obligations "no matter how remote or contingent," and develop a plan to expedite that relief. Chapter 11 also produces an automatic stay of all pending litigation and blocks payment of all unsecured debts incurred before filing, including attorneys' fees. Firms faced with overwhelming losses through asbestos litigation have increasingly turned to this option for protection of at least some of their assets. 128 In 1982 the company was spending $1 million a month on asbestos related legal fees (Chen 1984: 30). On April 1, 1982 their insurance company, which had paid out $16 million in asbestos claims during the first quarter of that year, informed Johns-Manville that they would not pay any more. Johns-Manville had seen its asbestos settlements rise form $300,000 in 1975 to $35 million in 1981, and the 1982 figure reached $27 million in August. As a consequence, the company chose to declare Chapter 11 bankruptcy against the 16,500 lawsuits that were pending and the nearly 500 new ones that were being filed every month.

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150,000 claims had been filed against the trust rather than the 100,000 predicted, and the average

award was $43,500 rather than the $25,000 predicted (Cohn and Bollier 1991: 132). The trust's

commitments to make payments for claims already settled during or before 1990 meant that any

new settlements would have to wait at least 15 years for a payment. There were $6 billion in

outstanding claims by 1990, but claims against the trust continued to increase. In fact, plaintiff

attorneys continued to use mass x-ray screenings through the 1990s to find more individuals that

could make claims against the Manville Trust, despite the fact that the trust was forced to reduce

payments on each existing claim in order to accommodate the increase.129 By November, 2002,

the federal judge overseeing the Manville Trust felt compelled to demand advice from the Trust's

management as to whether he should order fundamental changes in the way it was operating: "He

was responding to the fact that in light of ever-multiplying claims, the trust had been forced to

halve its payments on claims from 10 cents on the dollar to just 5 cents last June [2001], and was

in danger of having to shave them further, possibly to as little as 2 cents on the dollar" (Parloff

2002).

By August 1992, 16 asbestos companies had declared Chapter 11 bankruptcy, Since then

bankruptcies have continued at accelerating rate. The most recent Rand Corporation study on

asbestos tort found that by the end of 2002 at least 60 firms had declared bankruptcy due to

asbestos liability, with 22 occurring between 2000 and 2002 (Carroll 2002: 71). About two years

later, White (2004: 183) reported that 85 corporations have filed for bankruptcy as a result of

asbestos liabilities, and that several insurance companies have also either failed or are in financial

distress for the same reason. Since bankrupt firms are now immune from further liability (beyond

129 As noted above, the reliability of mass screenings is clearly questionable. Manville Trust management noted that eight screening doctors accounted for more than 70 percent off the new claims filed against the Trust between January 1995 and April 1998, and they were concerned about the reliability of these screenings, so they begun auditing claims in 1995. They had independent doctors reevaluate the x-rays: "Its doctors concluded that 38% of all the asbestosis claimants audited in 1996 suffered from no asbestos-related condition at all, while another 28% had conditions milder than had been asserted" (Parloff 2002). Plaintiff law firms sued to stop the audits, so they were discontinued.

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that established in the bankruptcy settlement), plaintiff attorneys have pursued other defendants

who are being forced to pay larger shares of settlements, as explained above. No doubt,

bankruptcies will continue, as specialized asbestos trial lawyers increase their wealth even more

and plaintiffs with meritless claims manage to capture some of the wealth being extorted.

V. Conclusions: Environmental Laws, Insecure Property Rights, and The Ability to Extort

Property rights provide incentives which condition behavior, so any change in rules that

alters property rights or makes them less secure sets off reactions by individuals. As a result, legal

authorities, be they Congressmen, judges, or regulators, can never anticipate all of the consequences

of their rule making and/or enforcement efforts. The property rights to productive income are

obviously valuable, for instance, so when they are insecure, anyone who sees a chance to establish a

"politically legitimate" claim to them has incentives to rush in quickly to establish such a claim.

Environmental statutes and changes in tort law have made property rights to the income of many

firms insecure, and the institution of private attorney general has made pursuit of that income

“legal."130 While the focus of this presentation has been on environmental extortion through the use

130 Consider Anderson and Fretwell's (2001: 4, 6) discussion of Unocal's experience with regulation and a citizen suit. Unocal's San Francisco refinery faced ever-increasing environmental standards under California's very strict standards. For instance, in 1991, the company was informed that the California Regional Water Quality Control Board (CRWQCB) was reducing its permitted selenium emissions levels. CRWQCB is the state agency charged with enforcing the CWA in that area. This reduced level of selenium discharge was mandated despite the fact that San Francisco Bay's selenium levels were one-tenth of the level established as a threshold for freshwater by the EPA. Furthermore, the limit could not be achieved with any known technology, so it was impossible for the company to meet the 1993 deadline for achieving the mandated reduction. . Obviously, such changes in standards alter property rights, as Unocal was suddenly faced with a reduction of its right to discharge this natural substance (found in soils, water, and crude oil, and emitted in the process of refining oil), but this was not the only change in Unocal's property rights. Unocal reached an agreement with CRWQCB to reduce the permit levels and extend the deadline, however, while Unocal carried our research in an effort to find a technology capable of achieving the targeted standard. Unocal also paid CRWQCB $780,000. Perhaps CRWQCB agreed, at least in part because this refinery had been modified in 1996 in order to produce Unocal's patented "reformulated gasoline" which met California's air pollution standards. In fact, the company's gasoline was estimated to have reduced air pollution in California by about 3 million pounds per day, the equivalent of taking 3.5 million cars off of California's roads (Anderson and Fretwell 2001: 4). At any rate, Unocal and the CRWQCB both assumed that the matter was settled satisfactorily. That is, they both assumed that a new property rights structure was in place. One of the environmental advocacy groups that actually had participated in the settlement hearings, Citizens for a Better Environment, was not satisfied, however. They file a citizen suit against Unocal for exceeding the emission requirement, exploiting technical characteristics of the settlement (e.g., it included a "payment" instead of a "penalty" and it was structured as

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or threat of litigation, however, environmental laws create insecure property rights that are vulnerable

to other kinds of threats as well.

Consider the re-licensing of hydroelectric projects under the Federal Regulatory

Commission (FERC).131 The Federal Water Power Act (FWPA) of 1920 gave FERC exclusive

authority to monitors and regulate non-federal hydroelectric facilities. This includes licensing and

re-licensing powers. In making licensing and re-licensing decisions, FERC is suppose assure that the

hydro power facility meets various development standards that provide commercial waterways,

protect or provide mitigation for fish and wildlife, and provide for various public uses such as

irrigation, flood control, water supply and recreation (FWPA 10(a)(1), 16 U.S.C. 803(a)(1)). Since

1920, a large number of amendments, court decisions, and other federal statutes have made the

regulatory decision-making process more complex, and more accessible to manipulation by other

government entities and by interest groups. In this context, FERC regulatory policies are suppose to

consider the impact of these facilities on the environment and on other resource users.132 Obviously,

hydroelectric projects have tremendous environmental impacts, both positive (e.g., substituting for

power produced through the burning of fossil fuels) and negative. However, re-licensing involves

projects that have already been in place for long periods, and which have been subject to regulation

by FERC and other agencies for much or all of their existence.

a Cease and Desist order rather than a NPES permit) to justify the suit. Clearly, regulatory property rights cannot be considered to be secure when citizen suit options exist. 131 The discussion of FERC licensing examples draws from Anderson and Fretwell (2001: 8-11). 132 One result is that the re-licensing process has become very costly. For instance, PacifiCorp has to re-license its North Umpqua project. They began the process in 1992, and by 2001 they had spent more than $42 million dollars simply documenting the environmental impact of the project (the results are part of a 43-volume re-licensing application and a 3-volume watershed analysis report), in response to all of the concerns raised by various state and federal government agencies, environmental advocacy groups, consulting firms and academic institutions. Note that this $42 million that cannot be spent on actual environmental safeguards and improvements, or anything else that might provide benefits (like reduced power rates) to people impacted by the project. This expenditure was not sufficient for re-licensing, however, since FERC also has to conduct a NEPA review, the Oregon Department of Environmental Quality must provide certification, and then advocacy groups will still be able to appeal any conclusions from all of these studies, both through administrative channels and through litigation. The Umpqua project generates enough power to make it worthwhile for PacifiCorp to bear such costs, but many other hydroelectric projects do not. After all, the median time for re-licensing for re-licensing is about 5 years,

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Seattle City light is a municipality owned utility. The original license for the three

hydroelectric dams they have in the Skagit River basin (a project dating from 1919) expired in 1977,

when negotiations process for re-licensing began. The settlement was not completed until the mid-

1990s. In order to avoid further challenges by various interest groups and government agencies, the

utility had to agree to spend over $100 million (roughly the net worth of the utility) to enhance and

protect natural and cultural resources (Indian tribes, state and federal agencies, and various other

advocacy groups took part in the negotiation, even though the project was entirely within the Ross

Lake National Recreation Area administered by the National Park Service). For instance, one of the

conditions imposed on the utility was that it purchase more than 8,000 acres of land for wildlife

habitat. This land purchases reach well beyond the natural watershed boundaries of the hydro project,

however, and included habitat for terrestrial species as well as aquatic (the Skagit watershed provides

Chinook salmon spawning areas, as well as runs for chum and pink salmon). In fact, FERC was

unwilling to impose such conditions on Seattle City Light, at least initially. The agency decision

makers felt that they were too disconnected from the hydroelectric project, arguing that they were so

"far-flung" that they were beyond FERC's jurisdiction (Anderson and Fetwell 2001: 8). In particular,

FERC resisted requiring the utility to acquire elk habitat outside the Ross Lake Recreation Area, and

as well as for utility funding for the forest service to inventory and plan habitat for eagles and other

wildlife, and for the park service monitoring of environmental conditions, both also being outside the

area. However, FERC and the utility were forced to add these conditions into the re-licensing

agreement in order to satisfy powerful advocacy groups and other government agencies and bring the

re-licensing process to an unchallenged conclusion. FERC's redraft of the re-licensing included the

requirements but stated that they were actually beyond the standards required by law. Anderson and

Fretwell (2001: 10, 8)) noted that about half of all FERC regulated hydroelectric facilities would

enter the re-licensing process between 2001 and 2016, and that "disconnected mitigation"

with examples of up to 28 years, and application costs alone are about $3 million to $20 million (Anderson and Fretwell 2001: 10).

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requirements such as those faced by Seattle City Light are occurring all over the country as special

interest groups exploit their bargaining power. This power arises, in large part, from their ability to

threaten delays and added costs by challenging settlement agreements.

The competition over the allocation of producers' income that arises through environmental

regulation means that wealth is dissipated, as in any non-exclusive common pool. Indeed, making a

claim in citizen suits or through tort law is not unlike making a claim to any insecure asset. For

instance, Libecap (1984: 383) explained that property rights to oil on federal land in the United States

were assigned only upon extraction during the early years of this century, and as a result, "Excessive

wells were dug along property lines to drain oil from neighboring areas; extracted oil was placed in

surface storage (open reservoirs as well as tanks), where it was subject to evaporation, fire, and

spoilage; and rapid extraction rates reduced total oil recovery as subsurface pressures, necessary for

naturally expelling subsurface oil, were prematurely depleted." Analogously, claims to producers'

income can be made upon "extraction" through litigation, threats of litigation, or other threats (e.g.,

delays in relicensing), so excessive "enforcement" tends to arise in an effort to direct the allocation of

wealth from each "pool" (each vulnerable producer), and the rapid extraction of income can lead to a

reduction of the total income available by undermining the earning potential of firms and causing

"premature depletion" (bankruptcy). This is particularly apparent in toxic tort, but to the degree that

citizen suits can be used by firms or unions to raise costs of competitors, the same can occur in these

cases. Similarly, many firms threatened by other losses due to enforcement, delays, and so on, will

simply choose not to produce any longer. After all, the producers who face the dissipation of what

used to be their exclusive income, also have incentives to compete to reestablish claims to that

income. They will bear high costs as they invest along every margin that may appear to be beneficial

in delaying losses or regaining rights. These efforts are likely to include the employment of active

and innovative defenses in litigation as long as some reasonable hope of stemming the outflow of

wealth exists, efforts to convince legislators to redirect the common law courts (tort reform) or alter

environmental statutes, and attempts to limit liability. Liability cam be limited by investing more

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resources to comply with technical regulations even though the investments may not enhance either

environmental quality or firm output, but there are important alternatives as well. These include

reducing investments in production of any product that might be misused and result in injury,

increasing insurance coverage and costs, applying extensive warning labels, downsizing legal entities

relative to what might be dictated by scale economies in production or management in order to

reduce the value of vulnerable assets, capital flight, reorganization under Chapter 11 Bankruptcy, and

so on. Thus, whether all extortion attempts are successful or not, they are still resulting in transfers

and/or dissipation of producer wealth.

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References

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