Call for AG reform growing

Legal News Line Aug. 15, 2008, 8:20am


CHARLESTON, W.Va. (Legal Newsline) -- First came the class-action lawsuit, followed by state attorneys general using the power of their office in connection with private plaintiff lawyers to pursue such lawsuits. Millions of dollars from ensuring settlements poured into state coffers.

Now, many say it's time for reform.

But trial lawyers, bar associations and many of the attorneys general say there is nothing to reform, that those multi-million -- or in some cases multi-billion -- dollar lawsuits are an act of reform itself.

When an attorney general sues a drug maker or mortgage company or even a software giant, they say they do so to reform those businesses that have made their billions in unethical or fraudulent ways.

Paying millions to settle huge lawsuits has a way of getting a major corporation's attention.

But the house is clearly divided when it comes to attorneys general.

Some of the most aggressive attorneys general past and present -- prominent names such as Florida's Bill McCollum, New York's Eliot Spitzer, California's Bill Lockyer and West Virginia's Darrell McGraw -- are the ones facing the most criticism for their twitchy litigious trigger-fingers and the class-action lawsuits they file.

"The fundamental concern for taxpayers," tort reform lawyer Amber Taylor said, "if the contracts are not subject to an open, public bidding process, is that the state is potentially getting a poor price for legal services. In cases in which the attorneys are paid on a non-competitive contingent-fee basis, less money ends up in the state treasury."

The pendulum appears to be swinging. State legislators are increasingly adopting restrictions upon their attorney general hiring outside counsel for large class-action lawsuits.

The legal system is now involved as well with challenges in West Virginia, California and Rhode Island reaching the state's highest court. Attorneys general also are beginning to change their methods, particularly as upstart new candidates seek to win voters with vows of reform, legal observers say.

Former Virginia Attorney General Jerry Kilgore said these concerns have brought increased scrutiny.

"The practice of appointing outside counsel has been given increased scrutiny both inside and outside an attorney general's office," he said.

While the debate may continue for years, the push for reform has gained traction and is changing the way attorneys general throughout the country do business.

"It appears AGs around the country," Kilgore said, "are less and less likely to hire firms ... without some policies and procedures."

While that may be true in many places, it rings hollow in the Mountain State.

Legislative reform has mostly failed over the years and Attorney General Darrell McGraw continues to appoint special assistant attorneys general and hire outside counsel -- most of whom are consistent contributors to his campaigns -- with little public oversight.

What's the problem?

The American Tort Reform Association, based in Washington, D.C., is among several groups pushing for change. In its Tort Reform Record of June 2008, it highlights the problems, which include plaintiffs failing to receive a fair portion of the settlements and campaign contributors being awarded these lucrative contracts without public scrutiny.

Class-action suits take cases with similar complaints and combines them into a single case. But the ATRA asserts, "class actions are now considered a means of defendant extortion. Today, some class actions are meritless cases in which thousands, or millions, of plaintiffs are granted class status."

Critics say the actual plaintiffs in these cases rarely receive compensation while attorneys earn millions in legal fees and settlements.

Such was the case in West Virginia, when outside counsel was paid $3.3 million in fees and expenses from a $10 million Oxycontin settlement, while the actual plaintiffs, three state agencies, received nothing.

Now the state's Department of Health and Human Resources has had federal funds held back because the federal government's Medicaid program did not receive its share of the settlement, thus potentially costing the DHHR millions for a suit the attorney general's office won on its behalf.

A second hot-button issue currently under the spotlight of reform is the cozy relationships between private attorneys and their state attorneys general.

Large campaign donors in states such as West Virginia and California have later been hired as outside counsel in multi-million dollar class action lawsuits.

"Contracts that are contingent-fee based on the size of recovery sets up a conflict of interest between the state's law-enforcement interests and the financial interests of the outside attorneys," said Theodore Frank, resident fellow of the American Enterprise Institute for public policy research.

"We would be very concerned if the state delegated criminal enforcement to outside officials who were paid for each fine collected or sentence imposed; there is no reason that the same principle and problem is not at issue in civil enforcement," Frank said.

Again, people around the country point to the contracts McGraw has given to his campaign contributors, a list West Virginia Citizens Against Lawsuit Abuse claims continues to grow despite increased public scrutiny.

"The attorney general's office has hired private attorneys to serve as Special Assistant AGs more than 25 times in the last three years," states a report issued by West Virginia's CALA in June 2007. "A vast majority of these appointments involve lawyers who have made large contributions to Darrell McGraw's campaigns."

McGraw is not alone. The San Francisco Examiner reported that then-New Mexico Attorney General Patricia Madrid "received more than a quarter of all her 2002 campaign donations from liabilities lawyers, some of whom received significant state contracts. Similar controversies have surrounded Oklahoma Attorney General Drew Edmondson and Missouri Attorney General Jay Nixon."

But the ATRA said these practices are not widespread across the country.

"Problems with activist or populist attorneys general are, thankfully, confined to several states and do not plague the nation as a whole," ATRA Spokesman Darren McKinney said this week. "Those states with attorneys general who have occasionally put their political interests and the interests of their trial lawyer supporters above the public interest include, among others, West Virginia, Mississippi, Alabama, Connecticut, Rhode Island and California."

All of this litigation is not without cost. According to a 2004 report, the cost of the U.S. tort system was $246 billion, or $845 per citizen. Costs increased by 35 percent from 2003 to 2004.

Types of reform

Though the wheels of change turn slowly in these matters, tort reform experts believe progress is being made.

While Virginia's attorney general, Kilgore supported legislation passed by the General Assembly that required the attorney general to competitively bid contingency-fee litigation, "to ensure the Commonwealth was obtaining the best deal," he said.

Connecticut passed similar legislation in 2005.

Nine states have enacted laws to better govern class actions, according to the ATRA. Some of these include procedures for certifying class actions, ensuring defendants receive adequate notice prior to a class-action certification and providing for an appeal of a class action certification.

Florida established a venue reform to prohibit out-of-state residents from filing class action lawsuits in Florida courts unless the claim occurred or emanated from the state. They also require that actual damages be proved to maintain certain class action suits.

Colorado passed legislation that requires monthly reports by outside counsel to include the number of hours worked and court costs in outside counsel relationships.

"In recent months," said a 2007 report in the National Law Review, "attorneys general in Ohio, New Jersey and California have instituted new policies that would require law firms to bid publicly for work or reduce confidentiality in hiring process."

Legislation in Kansas and Nevada is aimed at reducing the use of outside counsel, the report states.

West Virginia's first step of control over McGraw's use of outside counsel came during this year's first ordinary session when legislators passed House Bill 104, which requires the attorney general to notify the governor and legislator when filing a lawsuit and when entering into settlement agreements.

The step was admittedly a small one, according to Rep. Vic Sprouse, an outspoken critic of McGraw.

"I don't think this is progress because it is strictly a reporting requirement after the fact," Sprouse said. "I guess it's better than nothing, but it does show how scared the Legislative leadership is of Darrell McGraw that they only require him to tell them after he settles."

In 2007, the ATRA issued a voluntary transparency code in the hopes that attorneys general would adopt it to better police themselves. Kilgore supports the code and would like to see it become more widespread.

The transparency code calls for five standards in relationship to outside counsel contracts:

* all legal contracts to be publicly disclosed,

* contracts whenever possible to be open for competitive bidding,

* contingency-fee contracts to be subject to review by the state Legislatures,

* private attorneys hired by the state to disclose actual hours worked and fees incurred and

* funds obtained through settlements to be deposited to state treasury, not the attorney general's office budget.

The adoption of these standards as a uniform code would bring greater fairness and consistency among state attorneys general offices, ATRA President Sherman Joyce said.

Another voice for reform

ATRA isn't the only group wanting such reform.

Last fall, The U.S. Chamber Institute for Legal Reform issued a set of ethical standards for state attorneys general.

"This proposed code of conduct balances the ability of the AGs to pursue wrongdoers while protecting the due process rights of the targets of the investigation and litigation," ILR President Lisa Rickard said.

The proposed ILR code of conduct provides recommended "best practices" for initiating and conducting investigations and litigation, including guidelines for employing outside attorneys, communicating to the public about an ongoing lawsuit and handling any settlement or award.

"Some state AGs are increasingly using civil litigation to reap power, publicity and political advantage," Rickard said, "so it is critical that they hold themselves to the highest ethical standards akin to those applicable to federal and state regulators and other government prosecutors."

Rickard pointed to "improper and prejudicial practices" by some AGs as the reason the code is necessary. She said some attorneys general apparently see nothing wrong with receiving significant campaign contributions from plaintiffs' attorneys who later wind up getting lucrative legal work from their offices, often on a no-bid contingency fee basis.

She also cited examples of some AGs trying cases by press conference instead of in the courtroom, others using settlement moneys as a political slush fund, and still others threatening criminal prosecution to pressure businesses into civil settlements.

The ILR code of conduct can be found here, and the study on AG policies and practices here.

The U.S. Chamber owns Legal Newsline.

Fighting back

In response to the call for reform, many attorneys general remain unmoved, claiming that the ATRA and other organizations are simply shilling for the major corporations stung by lawsuits in the past.

"Plaintiffs lawyers said the moves toward transparency are assaults by business groups on attorneys general who bring damaging cases against them," said a 2007 National Law Review story.

"Jack McConnell, partner in the Providence, R.I., office of Motley Rice, which represents the state of Rhode Island in a high-profile public nuisance case against several lead paint manufacturers, said the U.S. Chamber of Commerce and other business groups 'have worked very hard to convince the public that attorneys general's hands should be tied in their ability to take on bad actors in the business community."

McGraw's campaign Web site is similarly dismissive of the ATRA and other organizations pushing for reform.

"In reality, the American Tort Reform Association, The Competitive Enterprise Institute, and Citizens Against Lawsuit Abuse are the sophisticated lobbying tool of the National Chamber of Commerce, whose members are regulated by the Attorney General's Office under the laws of West Virginia," the Web site states. "Big tobacco and the insurance and pharmaceutical industries fund bogus studies, which spew misinformation with the intent to influence West Virginia's political process."

Similar charges have been made by Teresa Toriseva, former president of the West Virginia Association for Justice, who is also both a campaign contributor of McGraw's and a lawyer appointed special assistant attorney general by him.

Toriseva called the ATRA "a front for billion-dollar organizations that issue bogus reports that attack our West Virginia courts."

Kilgore said he disagrees.

"ATRA is a front for open government and has gained a lot of support from state AGs and candidates for its openness agenda," he said. "The agenda is viable because it is the right agenda for taxpayers and transparent government."

The ATRA's McKinney said the attacks don't add up in light of the organization's agenda.

"Opponents of reform -- those with a vested interest in a corrupt status quo -- invariably resort to attacking ATRA, the messenger, because our message is unassailable," he said. "How can any reasonable, credible person be opposed to competitive bidding, public disclosure and scrupulous record keeping when it comes to government contracts of any sort? And how can anyone with respect for the constitutional separation of powers argue that an attorney general should usurp the legislature's exclusive authority to appropriate state funds?"

The battle continues within state legislatures as well, according to Joyce, the head of the ATRA.

Joyce issued a report in March documenting legislation throughout the country intended to scale back reform. He said more than 100 bills have been introduced in the last two years "seeking repeals or gains made in sunshine legislation."

It surely can be a challenge for the typical American voter to empathize with either side in a battle between millionaire trial lawyers and billionaire corporations.

But as Kilgore, Frank and others not tied to either side assert, issues of reform have less to do with the money, the lawsuits or the political gains, but more to do with the simple principle that public business should be done in the public eye.

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