In a little-noticed Dec. 27 order, U.S. District Judge Victor Marrero of Manhattan federal court granted preliminary approval to the settlement of antitrust class action claims that Wachovia rigged auctions for guaranteed investment contracts tied to municipal bond proceeds. Co-lead class counsel Michael Hausfeld of Hausfeld LLP characterized the $35- to-$37 million dollar settlement as proof of the strength of the class's case against more than 30 commercial and investment banks in the muni bond derivative business. But you can bet that Hausfeld would prefer that Wachovia hadn't previously reached a deal with a group of state attorneys general, settling essentially identical claims in an opt-in process that could be worth more than $55 million.

The muni bond derivatives case is the most dramatic example of an emerging trend in antitrust litigation: state AGs asserting claims that have the effect of diminishing private class actions. Traditionally, state regulators and the private plaintiffs' bar have enjoyed a cozy relationship, working together to gang up on defendants. Not so in the muni bond litigation, in which class counsel accused the AGs of hijacking their case after they'd spent years developing it. The tactics the AGs used in the muni bond case -- in combination with recent federal appellate rulings that boost state regulators' leverage against antitrust defendants -- could shift the paradigm for AGs and plaintiffs' lawyers.

In November, the U.S. Court of Appeals for the Seventh Circuit joined the Fourth and Ninth Circuits in holding that AG parens patriae antitrust actions are not disguised class actions and can remain in state court. As I've previously explained, these appellate rulings effectively endorse the power of state AGs to bring their own cases even when private class actions cover the exact same alleged conduct. (Ironically, defendants in the liquid crystal display litigation that generated the Seventh and Ninth Circuit parens patriae opinions made some of the same arguments that class counsel in the muni bond derivative case asserted to block the allegedly pre-emptive AG settlements -- a rare alliance of interests.)

For defendants, settling with regulators before private lawyers makes a lot of sense, as we've seen from the five defendants that have reached deals totaling about $700 million with AGs and federal agencies in the muni bond derivative case. (The most recent settlement was GE's $70 million agreement on Dec. 23.) By definition, regulators have a different kind of power over defendants than plaintiffs' lawyers. Moreover, class counsel in the muni bond case argued that regulatory deals are an easy out for defendants, since those settlements are not subject to the scrutiny of a federal judge, as private class actions are.

So if I were a plaintiffs' lawyer in the e-books price fixing case or the burgeoning automotive parts antitrust litigation, I'd be worrying about AGs swooping in with rival state-court parens patriae suits, or even attempting, a la muni bonds, to reach pre-emptive settlements with defendants.

Meanwhile, we'll have to wait and see what kind of settlements the private muni bond class reaches with the other defendants that have already made deals with the AGs. Maybe, as Hausfeld said about the class's Wachovia settlement, future agreements will significantly enhance the damages defendants have to pay. But even if they do, the class action settlements won't be as big as they would have been if the AGs had stayed out.

(Reporting by Alison Frankel)