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States Flex Prosecutorial Muscle

"It's cyclical. If you have an activist regulator at the federal level, it doesn't leave a lot of room for states," said Roger Noll, a Stanford University economics professor who studies regulation.

The dynamics changed again in the mid-1990s, when governors pushed for welfare changes and some state attorneys general sued the tobacco industry for consumer fraud. The tobacco settlement generated billions of dollars for state coffers and convinced even more state attorneys general of the advantages of working together.

"Twenty years ago, I did a bunch of [consumer protection] cases against local drugstores," said James E. Tierney, a former Maine state attorney general who now heads Columbia Law School's National State Attorneys General Program. "Today, what Rite Aid does in Lisbon Falls, Maine, Rite Aid does in San Francisco."

The tobacco lawsuits also introduced some state officials to a new resource: plaintiffs' law firms that work on contingency. New Mexico has used the tactic in environmental cases, and California's insurance commissioner this fall hired a class-action law firm to sue several insurance carriers over alleged kickbacks.

Many of today's activist state officials are Democrats who favor increased regulation, while the federal agencies are almost exclusively led by Republicans who favor free markets. Democratic California Attorney General Bill Lockyer has officially challenged the Bush administration nearly two dozen times, his office calculates.

Some attorneys general don't approve of the new activism. "Some [state officials] are forgetting that any time you announce you are investigating an industry, you cause the stock to drop, and you have real people, hardworking people, losing money," said Virginia Attorney General Jerry Kilgore (R). "We have to be careful and take a more reasoned and slow approach."

When more than a dozen state attorneys general -- led by Spitzer -- sued to block a Bush administration policy that allowed older power plants to upgrade without meeting new pollution standards, Kilgore organized a coalition of nine states on the federal government's side. "We need to expand our energy options. Virginia is a coal-producing state," he said.

The divisions aren't entirely along partisan lines. Northeastern Republicans have joined some of the environmental lawsuits, and Republican Attorney General Jim Petro of Ohio has sued Fannie Mae, alleging the mortgage funding giant's accounting methods misled and damaged his state's pension and insurance funds. The SEC's chief accountant has told Fannie its accounting was faulty, but the agency has not brought a case against the company. "We are not going to sit back and wait for the federal government where we perceive there is damage being done," Petro said.

As states have become more active, businesses have protested.

The power industry, for example, has fought lawsuits seeking new limits on carbon dioxide emissions -- often blamed for global warming -- something the Bush administration has declined to do. "Global climate change is an international and national issue that states and localities cannot effectively address," said Bill Fang, climate issue director for the utility industry's Edison Electric Institute. "The CO 2 lawsuits . . . are improper attempts to circumvent the federal legislative process and engage in judicial legislation."

Cynthia Bergman, an EPA spokeswoman, said in an e-mail that the agency differs from states in its approach. "States have the right to take action against a particular utility," she wrote. "But at the federal level, we prefer to require ALL power plants to reduce emissions, not just go after them one by one -- that process takes too long."

Drug manufacturers, too, are being hit with multiple state investigations, as well as product liability and consumer protection lawsuits. Recently they've started to argue in court -- sometimes supported by Bush administration lawyers -- that having Food and Drug Administration approval should protect them from many state lawsuits.

"Having a patchwork quilt of rules and regulation from many different states makes compliance challenging. That's why Congress has given FDA final regulatory authority," said Marjorie Powell, senior associate general counsel of the Pharmaceutical Research and Manufacturers of America.

Federal prosecutors and regulators worry that activist state officials might interfere with their own investigations. In 2003, Oklahoma Attorney General Drew Edmonds angered the Justice Department by filing criminal charges against WorldCom Inc. officials, including several who were cooperating with the federal government, and former chief executive Bernard J. Ebbers, who at that time had not been charged with wrongdoing.

Edmonds, a Democrat, said he jumped in because he feared the federal government would never charge Ebbers with fraud in connection with the firm's $11 billion accounting restatement. He said he had previously been frustrated by a federal investigation of the Oklahoma Corporation Commission in which the state's statute of limitations had lapsed by the time federal prosecutors announced they were not bringing charges.

After U.S. Attorney David N. Kelley of Manhattan flew to Oklahoma to meet with him, Edmonds agreed to delay his case. Ebbers has pleaded not guilty to all the charges.

Former EPA administrator Christine Todd Whitman, a Republican who also served as New Jersey's governor, says she can see both sides of the issue. "The federal government should set the broad basic standard, but if states can figure out better ways to do it for themselves, they should be able to," she said.

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