WASHINGTON (Legal Newsline) - Whether state attorneys general should be allowed to hire private attorneys on a contingency fee to enforce federal law was debated last week before a House subcommittee.
Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act allow state attorneys general to enforce federal laws against state and federally chartered banks. Former Florida Attorney General Bill McCollum was one of three who testified on Thursday before the House Judiciary Committee's Subcommittee on the Constitution.
Arizona Republican Trent Franks, the chairman of the subcommittee, started the hearing by stating the troubles he sees with attorneys general creating relationships with private attorneys. President George W. Bush signed an executive order while in office that forbid federal agencies to hire private attorneys on a contingency fees.
"The rule of law is not just a matter of what the law is," Franks said. "Who enforces the law and how they enforce it is also important.
"Over the past two decades, there has been an increase in the phenomenon of state attorneys general outsourcing law enforcement duties to contingency fee lawyers. The contracts that these state attorneys general enter into with plaintiffs lawyers are often secretive, lucrative and ethically dubious."
Franks said taxpayers do not get the full value of a settlement because so much goes to the private attorneys. In one instance, he said, private attorneys made $90,000 per hour they worked on a case.
"Many of these cases are not brought on an independent judgment by analysis of the state attorney general as a law enforcement official. Instead, outside trial lawyers generate cases and then pitch the case to the state," Franks said.
"In this way, the lawyers' interest in profit supplants prosecutorial discretion in deciding when to enforce the law. This trend is especially troubling because the plaintiffs lawyers who bring these cases are often the biggest donors to the state attorney general's election campaigns."
Along with McCollum, Manhattan Institute Center for Legal Policy director James Copland and Northern Illinois University law professor Amy Widman testified before the subcommittee.
In October, Copland released another edition in the Institute's Trial Lawyers, Inc. series. It explored the state attorneys general with close ties to the plaintiffs bar. Among those was former Ohio Attorney General Richard Cordray, who now heads a consumer protection bureau created by Dodd-Frank.
Copland said allowing state AGs to hire outside lawyers on a contingency fee basis to file lawsuits allowed by Dodd-Frank violates the order signed by President Bush.
"The concerns underlying Executive Order 12433 - namely, to "ensure the integrity and effective supervision of the legal and expert witness services provided to or on behalf of the United States" - apply with no less force when enforcement authority is delegated to the states," Copland's submitted testimony says.
"Indeed, given the multiplicity of state-level enforcers and the fact that most state attorneys general are elected officials who raise money for their campaigns, the possibility that state attorneys general might contract with private counsel on a contingent-fee basis to enforce federal law generates substantially magnified risks of actions that are ineffective or lacking in integrity."
In response, Congress should codify the Bush order, Copland said.
On the other side of the argument was Widman, who recently published a study examining the use of concurrent enforcement authority by state AGs in federal consumer protection laws. It was published in the Cardozo Law Review and says attorneys general are using their powers responsibly.
The study focused on 16 consumer protection laws that grant state attorneys concurrent enforcement.
Contingency fee arrangements have not been used in the relatively rare instances when a state attorney general has exercised a grant of enforcement authority delegated to it by Congress," Widman's testimony says.
"Given the clear benefit that such concurrent enforcement can provide for Congress, federal agencies and, ultimately, citizens, and given the growing support for a state role in restoring accountability to administrative law generally, there is no reason for Congress to address such concurrent grants of authority now any differently than they have in the past."
She added that state legislatures, not Congress, should address any problems with outside counsel contracts.
One of the solutions proposed by McCollum, who was a member of the House of Representatives before serving as Florida's AG from 2007-2011, was the fees cap system implemented in Florida while he was in office.
It provided a tier system for attorneys fees based on the amount of recovery, with a cap of $50 million. Florida's legislation also requires that the office must make a written finding that it does not have the resources to handle the matter in-house and seek competitive bids.
"Anytime an office hires private counsel on behalf of the state, attorneys general owe it to the taxpayers to be transparent and accountable in how and why they do so," McCollum said.
McCollum was testifying on behalf of the U.S. Chamber of Commerce and the U.S. Chamber Institute for Legal Reform. The ILR owns Legal Newsline.
As noted by the Manhattan Institute's October report, seven current attorneys general have received a measure of criticism for their relationships with the plaintiffs bar. They are:
-Louisiana's Buddy Caldwell, who gave state lawsuits over the Gulf oil spill to firms that had collectively donated $145,000 to his campaign;
-Mississippi's Jim Hood, who hired lawyers who contributed to $75,000 to one of his campaigns for a lawsuit against Eli Lilly & Co. and, according to federal prosecutors, worked closely with now-imprisoned attorney Richard "Dickie" Scruggs during litigation against insurance companies after Hurricane Katrina;
-New Mexico's Gary King, who hired the same firm that Hood picked for the Eli Lilly case to sue Janssen Pharmaceutica after it gave him $50,000 for one of his campaigns;
-West Virginia's Darrell McGraw, who, the report says "has made a habit of offering no-bid contracts to plaintiffs lawyers" like DiTrapano Barrett & DiPiero, which has given McGraw $37,800 since 2004 and has been hired for suits against five pharmaceutical companies;
-Iowa's Tom Miller, who is heading nationwide settlement talks with mortgage lenders and saw more than $170,000 in contributions from out-of-state plaintiffs and defense firms in the months surrounding his formal takeover of the negotiations;
-Utah's Mark Shurtleff, a Repubolican who hired Steele & Biggs to handle his lawsuit against Eli Lilly. The firm gave $58,000 to one of his campaigns and hired his daughter to work as a paralegal on the case; and
-Vermont's William Sorrell, who, the report says, pushed a bill through the legislature that retroactively changed state law to allow him to join the lawsuits against the tobacco industry that led to a $246 billion settlement in 1998.
"Sorrell has subsequently signed his state on to misguided suits like the one targeting energy companies for global warming," the report adds.
Cordray was also singled out in the report for his actions while Ohio's attorney general.
"In 2007 and 2008, out-of-state plaintiffs firms donated $830,000 to the Ohio Democratic Party, led by the New York firms Kaplan Fox & Kilsheimer and Bernstein Litowitz Berger & Grossmann - both shareholder class action specialists - which contributed $270,000 and $175,000, respectively," the report says.
Cordray hired those firms for a lawsuit against Bank of America, and they became lead counsel. Cordray said that the lawsuit, which alleges that Bank of America agreed to let Merrill Lynch pay nearly $5.8 billion in year-end bonuses during negotiations, could possibly recover billions of dollars. The case settled for $475 million.
Cordray's 2009 lawsuit against the three major credit rating agencies was recently dismissed by a federal judge. The private firms hired by Cordray for the lawsuit were: Lieff, Cabraser, Heimann & Bernstein of New York; Entwistle & Capucci of New York; and Schottenstein Zox & Dunn of Columbus.
Employees of the Lieff firm gave $50,000 to the Ohio Democratic Party in 2008. The party gave Cordray more than $1.8 million for his campaign that year.
The Schottenstein firm gave $23,500 to Cordray from 2008-10.
From Legal Newsline: Reach John O'Brien by e-mail at email@example.com.