WASHINGTON (Legal Newsline) - A long-simmering fight over how the National Association of Attorneys General is managed – including how it handles nearly $300 million it has obtained from legal settlements – has broken into the open, as at least five state AGs have withdrawn from the organization and others signed on to a harsh letter calling for greater transparency in its finances and management.
Earlier this month, Texas Attorney General Ken Paxton notified NAAG his state was pulling out along with Arizona, Missouri and Montana. Last year, Alabama AG Steve Marshall quit, saying he “can’t justify spending taxpayer dollars to fund an organization that seems to be going further and further left.”
As NAAG members met for a conference on consumer protection law in North Carolina this week, Kentucky AG Daniel Cameron added to the controversy in a letter complaining about the group’s increasingly pro-Democratic governance and raising questions about how it disburses money to member AGs to fund litigation that frequently also benefits private lawyers.
Private lawyers working for state and local governments as well as other entities stand to take in some $2 billion in fees from a single large settlement state AGs negotiated with opioid distributors and Johnson & Johnson, for example, and have earned hundreds of millions in fees from litigation they pursued in parallel with the states against Volkswagen and other companies.
At the North Carolina gathering this week, one AG acknowledged NAAG dispenses money to individual state AG offices as “loans,” recovering the money when a settlement is reached. In the most recent example, NAAG claimed $15 million of a $573 million nationwide settlement with McKinsey & Co., more than double the $7 million it said it extended to state AGs to investigate opioid-related claims against the consulting firm. The $15 million was 40 percent more than the state of Kentucky got from the settlement and double what some others received, Cameron complained.
“These states have lost thousands of their citizens to the opioid epidemic and represent thousands more who still struggle,” he wrote, in a letter obtained by Legal Newsline that refers to the support of other AGs. “Yet NAAG, an entity with no such constituency, collected $15 million.”
A non-profit professional association for state AGs, NAAG has accumulated a $270 million war chest in recent decades through such settlements. Its first big payday came with the national tobacco settlement, when cigarette makers pumped more than $100 million into NAAG and its Mission Foundation, which describes itself as providing “education, research and training programs.” NAAG reported $19 million in settlement income in 2021 and $5 million in 2020, dwarfing its income from member dues and program fees.
NAAG claimed $20 million of the $570 million Volkswagen settlement in 2016, while private lawyers collected another $175 million in a separate $15 billion settlement over the so-called “dieselgate” scandal. The organization also received $15 million from a $25 billion mortgage settlement in 2012.
The withdrawal of more Republican AGs will heighten the contrast between NAAG’s finances from operations and the money it gets by negotiating settlements. The group reported about $3 million in dues last fiscal year, paid by the state AGs with taxpayer dollars, along with nominal income from registration fees and about $1.4 million in fees it collects for managing settlement funds. It spent about $7.4 million on programs and meetings, however, meaning any significant decline in state AG dues could cause a financial crunch as the terms of most settlements restrict how NAAG can spend the funds.
In his letter, the Kentucky AG criticized the practice of lending money to individual AGs as “grants” to pursue litigation and collecting the money through settlements that steer it back to NAAG.
Like many other states, Kentucky has a constitutional requirement that public money be deposited with the state treasurer and spent on public purposes. While NAAG told its members in a letter earlier this year that all the dollars it controls “belong” to the states, AG Cameron asked the group to clarify how they are held, managed and disbursed.
That money is typically disbursed by committees dominated by Democratic AGs, Cameron said. This has contributed to a “pernicious trend” of “increasingly partisan programming and the seeming exclusion of conservative members in favor of more left-wing members.” He called for bipartisan decision making over funding and an end of the practice of disbursing money to a single AG, as opposed to funding litigation by larger groups of states.
A NAAG spokesperson, in response to questions about defections from the group, said NAAG will welcome them “to re-engage as active members at any time.”
“NAAG is transparent with its members about its finances, including providing annual reports to members,” the spokesperson said. “Bipartisan committees of attorneys general, not NAAG staff, control how the organization’s funds are spent. Information can also be requested at any time by any NAAG member.”