Long before he disgraced himself as Client 9, Eliot Spitzer made a name for himself as a result of his aggressive role as New York Attorney General in investigating and prosecuting corporate misdeeds. Some conservatives complained that Spitzer, in tackling issues of national moment, was overstepping his authority. Progressives responded--rightly in my view--that there is concurrent jurisdiction between state and federal authorities for many of the sorts of actions that Spitzer was targeting. Federal securities laws operate on top of state corporate law, and so Spitzer was acting within his rights in taking actions designed to protect the shareholders of corporations that did substantial business in New York State. Somewhat more controversially, it was sometimes suggested that lax oversight by the SEC and the Bush Administration warranted Spitzer's efforts to fill the regulatory void. That was a more controversial defense because it suggested that Spitzer was using his state powers pretextually to address national issues.
Now comes Spitzer's successor, NY State AG Andrew Cuomo, who has been investigating the AIG bonuses. That investigation has already yielded substantial rewards. The latest statement from AG Cuomo reports: "So far, 9 of the top 10 bonus recipients have agreed to give the bonuses back. Of the top 20, 15 have agreed to return the bonuses."
I have little doubt that the NY State AG has the technical authority to investigate AIG. It's based in NY State and shareholders in AIG could complain about breaches of fiduciary duty (a matter of state corporate law) if the bonuses were improperly paid. And yet the use of the state AG's authority looks quite pretextual here. Indeed, AG Cuomo's statement tellingly refers to the giveback of the bonuses as "what this country now needs and demands"--not what NY State needs and demands. As everyone knows, if there is a problem with the bonuses, it is that they use federal taxpayer funds to reward people who performed badly.
Our constitutional law permits the federal government to use its power over interstate commerce to accomplish ends--such as forbidding various forms of discrimination--that are not strictly economic or commercial in nature. Notwithstanding language in early cases prohibiting the federal government from using its powers pretextually, there is effectively no such limit on the modern exercise of federal powers. So why not have the same approach to state powers?
One plausible answer would be that the states and the federal government are dissimilarly situated. The federal government is representative of the whole country, including all of the states in which federal law operates, whereas a state AG using state power to accomplish national ends does appear to be acting beyond his jurisdiction. But if that's so, then it seems that the right answer is for Congress to pre-empt the forbidden state regulatory activities rather than for courts to attempt to develop a jurisprudence that forbids state pretextual regulation, which, in practice, will likely prove very difficult to identify.
So the bottom line is that AG Cuomo may well be acting in a national capacity, but until the feds tell him to cut it out, that's his prerogative.
Posted by Mike Dorf