AG Watch

Pretend, for a moment, that the system of AG lawgic applied universally. Suppose the Attorney General of Manitoba wanted to enforce a hypothetical new Manitoba law that banned certain cell phones (because, for the purposes of this thought experiment, they might cause cancer if used improperly). All manufacturing of these phones would stop in Manitoba and no distributor would sell the phones there. But, of course, the USA would still have the prerogative of sovereignty and, wise or unwise, could choose to continue to allow the “bad” cell phones to be made and distributed within its own borders.

Because these US-made “bad” cell phones would be perhaps slightly less expensive—though potentially carcinogenic—some enterprising scofflaw would sneak some of the USA phones into Manitoba and some ne’er-do-well would sell them. Now, would the US company be liable by the Manitoba statute for making US phones compliant with US law for sale in the US? Could the Manitoba AG sue the US company for, say, $2.25M?

California Attorney General Bill Lockyer took $2.25M from Pepsi over the weekend because scofflaw retailers in California sold soda that had been bottled in Mexico according to Mexican regulations and for Mexican consumption. The absence of legal affiliation (beyond the goods and services provided contracts) between the bottlers, distributors, retailers, and PepsiCo further convolutes the situation. In brief, Pepsi sold soda syrup; after that, they did not control the product. Individual retailers put this stuff on shelves and this stuff did not comply with California’s Prop 65. But Lockyer went after the deep pockets.

Now, Mr. Lockyer and you and AG Watch may agree or disagree with Mexico’s regulatory policies, and maybe we could convince the FTC to get in a dialogue with Mexico about those regulations. Or maybe Mr. Lockyer could spend more time policing the soda machines in his state—though that would require Californians to bear the burden of the California regulation and wouldn’t hit many deep pockets.

But we think Mr. Lockyer has found his optimal solution already: arbitrage lawsuit settlements through the regulatory imbalance created by Prop 65. What the heck does he care if the rest of the country (and world) pays the price of his litigulatory thought-experiments.