“Tell your Mama, tell your Pa/I’m gonna send you back to Arkansas.”  The way Ray Charles sings those lyrics from “What'd I Say,” it sounds like a threat.  What’s so terrible about ending up in the Razorback, excuse us, the “Natural” State?  How can we not adore a place that gave us Johnny Cash, Douglas MacArthur, and Maya Angelou?  Bear Bryant is justifiably famous for coaching Alabama (and, before that, Texas A&M),  but he was born in Arkansas.  Because of Arkansas, we can buy really cheap poultry at Walmart.  Plus, we applaud a state legislature that officially endorsed the possessive form “Arkansas’s.” 
 
What’s not to like?
 
Well, maybe you haven’t noticed, but we are defense lawyers.  Arkansas courts ‘enjoy’ a reputation of serving up nasty home cooking to out-of-state corporate defendants.   Certain counties in Arkansas are as friendly as parts of Southern Illinois are to class actions, mass actions, and just-plain-horrible actions.  We were delighted earlier this year when the U.S. Supreme Court held that plaintiffs cannot escape CAFA federal jurisdiction by submitting a bogus stipulation that the amount at issue was less than the $5 million jurisdictional minimum.  Standard Fire Ins. v. Knowles, 113 S. Ct. 1345 (2013).  That case came out of Arkansas, and the record was replete with recitals regarding Texarkana jurisprudence.  It made us think of Sling Blade – a movie whose star was that well-known Arkansas auteur, Billy Bob Thornton.  Put plainly, Arkansas seems to afford way too many opportunities to plaintiffs to create high-volume, high-stakes litigation that steers a case toward settlement via extortion.
 
That is one reason we are following the doings in Arkansas v. Takeda Pharmaceuticals North America, Inc.,  2013 U.S. Dist. LEXIS 160593 (W.D. La. Nov. 7, 2013).  In that case, a plaintiff (named Bowerman) purported to bring an action on behalf of Arkansas and its citizens for damages associated with Actos and other drugs containing pioglitazone.  As usual with Actos litigation, the plaintiff claims that the drug caused bladder cancer and other side effects.  As usual, the plaintiff alleges defective design, flaws in manufacturing, and failure to disclose risks.  What is not usual is that this plaintiff “alleges the State of Arkansas, and its citizens, have borne (and continue to bear) the treatment costs for heart attacks, heart injury, excessive fluid retention, fluid overloaded disease, liver damage, liver failure, strokes and/or severe injury to the heart leading to cardiac arrest, bladder cancer, and death, allegedly caused by Actos.  The State allegedly would not have purchased Actos for the benefit of its citizens had Defendants properly disclosed the risks associates with its long-term use.”  2013 U.S. Dist. LEXIS 160593 at *26.  The plaintiff seeks a refund of money spent to purchase Actos and of money previously spent to treat damages caused by Actos.  The theory relied upon by the plaintiff is called “illegal exaction,”  which is defined in Arkansas law as “any exaction that is not authorized by law or is contrary to law.” Id. at **30-31.  One example of such a case involves an allegation that public funds were “misapplied or illegally spent.”  Id. at *31.  For example, a misapplication by a public official of general revenue funds would constitute an exaction from the taxpayers and would empower any citizen to maintain a suit to prevent such misapplication of funds.
 
The seminal opinion on Arkansas “illegal exaction” is Nelson v. Berry Petroleum Co., 242 Ark. 273 (1967).  The case contains narrow facts but broad language.  Nelson had uncovered an alleged years-long conspiracy to fix prices by companies that sold asphalt to the State of Arkansas.  Nelson alleged that the defendants unlawfully had received in excess of $3 million in taxpayer funds as a result of this wrongful conduct and sought a refund of those funds into the State Treasury.  The Nelson court held that the illegal exaction case could proceed. 
 
The Actos claim does not seem at all like the clear misappropriation of public funds in Nelson, and you get the sense that that the Actos court wished it could pull the plug on the action.  But Nelson and its progeny seem to suggest that “almost any misuse or mishandling of public funds may be challenged by a taxpayer action; even paying too much for cleaning public outhouses has been held to be a basis for a taxpayer’s right to relief.”  Id. at *34.  The problem seems to be that Arkansas courts have not yet articulated meaningful limits to the “illegal exaction” theory.  Nor did the plaintiff articulate any legal theory under which the actions of the defendants were wrongful.  The Actos court complains that the plaintiff “has not graced this Court with the benefit of his insight as to his actual legal theory.”  Id. at *42. 
 
The Actos court recognizes that the Actos claim would seem to be a crazy extension of illegal extension:
  • Unlike Nelson, in the Actos case the Arkansas Treasury made payments to third parties (not to the defendants). 
  •  
  • Unlike Nelson, it would be complicated for the Actos plaintiff to prove causation of harm as to each recipient of the challenged medical services provided by the State of Arkansas.
  •  
  • Unlike Nelson, expanding illegal exaction to a mass tort litigation “has the potential to trigger substantial and perhaps, as of yet, not fully understood or appreciated negative repercussions for the State of Arkansas and its legal system and business communities.”  Id. at *39-40.  Well … yeah.  Exactly.
(We will confess to a certain degree of hurt feelings that the Actos court did not also mention that the plaintiffs' theory is arguably askew with the municipal cost recovery rule.  As we wrote about it over six years ago, the municipal cost recover rule means that  governments should not be able to levy what is essentially taxation without representation -- really, taxation via litigation -- to recover costs the government expends to do its job.) The Actos court is hesitant to “make an Erie guess” as to whether the Supreme Court of Arkansas would “expand the application of the illegal exaction doctrine, contract the application of the doctrine or distinguish the facts and nature of the present case from Nelson, altogether.”  Id. at *53.  Consequently, the Actos court certified the following questions to the Arkansas Supreme Court:
 
  • Does Article 16 §13 of the Arkansas Constitution provide Bowerman with a claim for illegal exaction under the facts and circumstances presented in this case?  If so, does that claim extend to both theories proffered by Bowerman (i.e. product liability and unfair trade practices) and each of the remedies requested?
  • Is Nelson v. Berry Petroleum Co., 242 Ark. 273, 413 S.W2d 46 (1967) still good law in Arkansas?  Does Nelson v. Berry Petroleum Co. embrace the expansive reading presented by Bowerman, or the more narrow reading argued by defendants, or is Nelson inapplicable to the facts and circumstances of this case? 
Will the Arkansas Supreme Court draw a reasonable limit around the illegal exaction theory and permit the Actos court to dump this misbegotten case?  Here we cannot help but think of the name of Bill Clinton’s birthplace:  Hope.