Miss. speaker candidate: Hood mishandling settlement funds

Jessica M. Karmasek Oct. 31, 2011, 9:00am




JACKSON, Miss. (Legal Newsline) - One Mississippi lawmaker says Gov. Haley Barbour's warning not to rely on recent legal settlements as a "windfall" for the state's budget is another example of why the Legislature -- not Attorney General Jim Hood -- needs to do the appropriating.

"The attorney general is the chief law enforcer of the state," said state Rep. Philip Gunn, a Republican.

"He is not elected to decide how taxpayer money is to be spent. That's just not in his job description. That is the Legislature's job."

Gunn, who has served in the House for nearly eight years and is a candidate for House Speaker, continues to fight for an attorney general "sunshine law" in Mississippi.

"In each state, its AG is given the legal right to negotiate settlements of this nature, and they have the sole authority to decide how it's going to be spent," he explained.

"The problem is, nationwide, that AGs end up hiring their favorite firms or political supporters to handle these cases for the State and then pay them whatever they want -- giving them taxpayer dollars. Then, in turn, they make campaign contributions to the attorneys general when election time rolls around."

Hood, who is seeking his third term, faces Republican Steve Simpson in the state's Nov. 8 election.

A sunshine law, Gunn said, would do just that -- bring to light the process -- and take the authority to appropriate taxpayers' money away from the attorney general and instead give it to the Legislature.

"It just creates too many political problems otherwise," he said.

And the settlements Hood's office reached last week, he said, are a prime example.


Last Monday, Hood's office announced that two settlements with three pharmaceutical manufacturers were reached in ongoing cases related to average wholesale prices, or AWPs.

Hood said the settlements with Par Pharmacuetical Co., Alpharma USPD Inc., now known as Actavis Mid-Atlantic LLC, and Purepac Pharmaceutical Co., now known as Actavis Elizabeth LLC, would put $6,032,000 in the state's coffers.

The money comes from recently settled cases in the AWP litigation involving allegations of consumer protection violations and Medicaid fraud.

AWPs are the average price at which drugs are purchased at the wholesale level.

The two settlements followed a verdict in September by Judge Thomas L. Zebert in favor of the state in another AWP case against pharmaceutical company Sandoz Inc.


In a two-page letter to joint legislative budget committee members the same day, the governor said September's revenue estimate showed revenues for the month about $46 million above the sine die estimate.

After looking at it closer, Barbour said he learned the estimate included $20,041,000 in so-called "revenue" from the settlements of the AWP cases.

However, the State will only receive a fraction of those funds, he said.

"I am writing to make sure you and others are not misled by this entry to think the State has $20.041 million in additional funds that will be available for appropriation or expenditure either now or in the next fiscal year," he wrote. "We do not."

Barbour pointed out that the State may, in fact, receive less than $1 million of the proceeds. Meanwhile, former Gov. Ronnie Musgrove's law firm has been awarded more than $5 million in fees by Hood, he noted.

"The State settled these lawsuits for $25,700,000 this year. The attorney general gave former Gov. Ronnie Musgrove's law firm, which handled the litigation, a fee of $5,459,000," the governor explained in his letter.

"That does leave a balance of just above $20 million, but the State is not entitled to all that money. We cannot expect $20 million to be available for us to spend, as the federal government is entitled to at least 82.03 percent of that amount."

Under the law, the federal government is entitled not only to its share of the recovery but also to half, or $2,729,500, of the attorneys fees Hood gave to Musgrove's firm.

"Therefore, according to Medicaid's best estimates, the State may actually retain for appropriation as little as $907,807.70," Barbour wrote.

"Of course, this means former Gov. Musgrove and his law firm will get more money out of the lawsuit ($5,459,000) than the State of Mississippi and its taxpayers receive -- as much as six times more."


This wouldn't be the first time Mississippi has been faced with the issue of the attorney general's handling of settlement funds.

The issue, however, could be decided by the state's high court.

In September, the state's Auditor's Office asked the Court to declare funds that Hood collects from settlements to be public money.

Auditor Stacey Pickering wants all funds collected from lawsuits to be turned over to the Legislature, including what outside, private firms collect for their work.

At issue is the legal fees those private firms collect, not their hiring. Pickering's office says all monies should go to the state.

"And it should," Gunn said. "That's taxpayer money, too."

In particular, the Auditor's Office is challenging a decision last year upholding $10 million in fees paid to private attorneys hired by Hood to represent the State in a lawsuit against computer software giant Microsoft.

Hinds County Chancellor Denise Owens ruled in favor of Hood and his attorneys.

The settlement gave consumers $12 vouchers, while the state received $40 million from Microsoft. It provided up to $60 million in vouchers to consumers, businesses, governments and public schools for use in buying Microsoft products, but only $1 million worth were redeemed.

A separate but related case was debated before the Court in June.

The case -- initiated by former Auditor Phil Bryant and since pursued by Pickering -- involves $14 million paid to attorneys who represented the state in a $100 settlement with MCI, formerly known as Worldcom before bankruptcy proceedings.

Hinds County Circuit Court Judge Winston Kidd upheld the $14 million that attorneys made in a February 2010 decision.

Bryant had filed suit against Joey Langston's firm in 2007, arguing that the Legislature needed to approve any usage of the $100 million in settlement funds, including attorney fees.

Langston was sentenced to three years in prison after pleading guilty in January 2008 to a charge that he attempted to bribe former Hinds County Circuit Judge Bobby Delaughter with consideration for a job as a federal judge.

The attempt, Langston says, happened when he represented plaintiffs attorney Richard "Dickie" Scruggs in a dispute over attorney fees earned in asbestos settlements. Timothy Balducci also represented Scruggs in the case and represented the State in the MCI case.

Hood refused to defend the Auditor's Office in the dispute with Langston and Balducci.

"It's just wrong," Gunn said of the state's current appropriation process.

"It's taxpayer money and the taxpayers are represented by the Legislature. They should decide how that money is spent and make sure it is spent wisely on behalf of the taxpayers."


What makes the situation even worse, Gunn said, is the state's budget.

It's always a sticky spot and, no doubt, a very partisan issue, he said.

"The major conflict we have in Mississippi every year is arriving at an agreement on what is 'the number' -- the total number we'll have to spend," Gunn said.

"Democrats always overshoot. Republicans always are pulling back. There's always this disagreement."

And understandably so, he added.

"There's always a certain amount of projection when it comes to coming up with a budget, so it is difficult. I'm not blaming either side, really. I'm just saying it's challenging enough."

Then add in figures, like the $20 million in "revenue" from the settlement of the AWP cases.

"They use figures like this and others to try to say, well, we have this extra pot of money," Gunn explained. "But it's one-time money. It's a one-time infusion. It's not going to be there again next year or the year after.

"That's kind of what we're fighting against here. Yeah, great, we have some more money this year, but then next year, it's not there. Then it becomes harder to cut than stay within your means."

Gunn pointed to the makeup of the state's government.

"We have eight major statewide officials in Mississippi. Seven of those are Republican. The only Democrat is Hood," he said.

And he is "very much" in the Democratic camp, Gunn said.

"He's all about doing what the Democrats want to do. And in my judgment, they overcalculate the money we've got. They want to use one-time monies like its recurring money," he said.

"And that's where all this fussing and fighting comes from. We're constantly bickering over how much money we have."


Hood isn't the only attorney general to face scrutiny for his handling of settlement monies.

West Virginia's Darrell McGraw also has gotten in trouble for characterizing the full amount of his settlements going to the state.

The Centers for Medicare and Medicaid Services, a part of the federal Department of Health and Human Services, says McGraw wrongfully kept $2.7 million from his 2004 settlement with Purdue Pharma, the maker of OxyContin.

CMS provides the bulk of dollars West Virginia spends on Medicaid and feels it should be repaid when a lawsuit alleging harm to the Medicaid program results in a settlement or award.

The U.S. Court of Appeals for the Fourth Circuit agreed in August, ruling that McGraw wrongfully kept $446,607 by not classifying the proper amount of an $850,000 settlement with Dey Inc. as Medicaid recovery.

The $2.7 million withhold had been stayed while that case was sorted out, since the arguments in the two cases are identical.

In 2004, the year of the Dey settlement, the federal government supplied 78 percent of the money West Virginia used on Medicaid. CMS noted that McGraw and the private attorneys he hired to represent the State estimated that Dey caused more than $950,000 of damage to the state Medicaid program. Dey settled for $850,000.

The federal government argued that McGraw had not returned the settlement funds to the state Department of Health and Human Resources because it would have alerted CMS to a possible recovery.

"Instead, the State gave $750,000 to (the Public Employees Insurance Agency) -- i.e., roughly five times the State's own damages estimate for PEIA -- and gave the remaining $100,000 to the Consumer Protection Fund of the West Virginia Attorney General's Office."

The private attorneys hired by McGraw also received $250,000 for their work in the Dey settlement.

The Fourth Circuit ruled that a "straightforward application of the Medicaid Act" shows that the feds had the right to withhold funds and that the amount was properly decided.

But it was McGraw's $10 million settlement with Purdue Pharma that caused more of a controversy.

Rather than give the settlement funds to the state agencies named as plaintiffs, McGraw used the money from the settlement on substance abuse programs around the state, as well $500,000 to the University of Charleston for a pharmacy school. In addition, private attorneys received more than $3 million in the settlement.

But McGraw argued there was a fourth plaintiff -- the affected individuals in his state he was representing in his parens patriae capacity.

"We find no merit in this argument," the Departmental Appeals Board wrote.

"It is not evident from the record that the State was, at the time of settlement, seeking damages on behalf of individual consumers."

Chief Deputy Attorney General Fran Hughes has admitted to the state Legislature that the Purdue Pharma money was not given to the state DHHR, which administers the Medicaid program, because the federal DHHS would then be able to claim a share.

"We have arranged a methodology that has prevented the federal government from coming back and seizing money," said Hughes, who formerly served as general counsel for a national consulting firm that specialized in Medicaid financing.

Now it appears McGraw is ready to accept a ruling that he shortchanged the federal government.

Both McGraw's office and attorneys for the federal Department of Health and Human Services signed a joint motion to lift the stay on the Purdue Pharma withhold. Both sides have filed their motions for summary judgment.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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