SANTA FE, N.M. (Legal Newsline) - Responding to inquiries sparked by a Legal Newsline investigation, the New Mexico State Ethics Commission said a $148 million contingency fee paid to private lawyers out of an opioid settlement was subject to a procurement law governing all expenditures by state agencies.
New Mexico Attorney General Raul Torrez approved payment of roughly a third of the state’s $453 million settlement with Walgreens earlier this year to private lawyers, some of whom had made campaign contributions to his predecessor Hector Balderas, who hired the firms. The fee was triple what other government plaintiffs have paid their private lawyers in national opioid settlements and only came to light after Legal Newsline filed a public information request with the AG’s office.
The recipient law firms were Baron & Budd, Robles Rael Anaya and Levin Papantonio.
Saying it was responding to a request for an advisory opinion, the State Ethics Commission said contingency fees represent funds that belong to the state and are subject to the state Procurement Code. That opinion comports with generally accepted law, the commission said, although some government officials, including Florida AG Ashley Moody, maintain the money they pay outside lawyers comes from the defendant and isn’t subject to procurement laws.
The Ethics Commission disagreed with that view.
“When a fund is recovered to pay a judgment or a settlement, the fund belongs to the client,” the board said in a Nov. 3 opinion. “Where the client is a state agency, the recovered fund would be public money.”
The Procurement Code requires contracts worth more than $60,000 to be awarded under a sealed-bid, competitive process, and they can’t be broken up – such as by paying a nominal fee to lawyers and leaving the rest to contingency – to get around the limit, the ethics board said.
Balderas, in a statement to the Santa Fe New Mexican, said he hired the state’s outside lawyers in the Walgreens case through “a competitive bid process.” At least one of those firms, Baron & Budd, contributed $11,000 to his campaign in 2018, according to state campaign finance records.
John Decker, president of the Viante Foundation, said his group is asking current AG Torres to release the findings of a state auditor’s investigation into how Balderas hired the firms and whether it was a competitive process. Viante, which says its mission is to support “common ground solutions to education, crime and economic opportunity,” said the law firms had contributed more than $57,000 into Balderas’ political campaigns over his career.
“Contingency fee contracts such as the ones Hector Balderas engaged in are subject to the procurement code, and we believe that the public has a right to know how their tax dollars are being spent,” Decker said.
The Ethics Commission surveyed state law around the country to arrive at its conclusion that contrary to what some government officials say, contingency fees consist of money that belongs to state taxpayers until the lawyers receive it. Contingency fee contracts typically include an enforceable lien against any proceeds the client wins, but that lien would be meaningless unless the money it covers belonged to the client in the first place, the commission said.
New Mexico’s procurement code also prohibits vendors from making campaign contributions to officials in charge of hiring them during the bidding process.
When a state agency or local public body is selecting law firms to pursue claims on a contingent-fee basis, and especially where the fee could easily reach millions of dollars, these safeguards are all the more important to combat undue influence, quid pro quo conduct, and the appearance thereof,” the ethics commission wrote, citing the June Legal Newsline article in a footnote.
A spokesperson for Florida AG Ashley Moody earlier this year told Legal Newsline the state paid Washington law firm Kellogg Hansen $73 million, well more than the $50 million limit on contingency fees under state law. A subsequent public records request yielded a higher number, however: According to an affidavit the state prepared but apparently never filed in court, Kellogg Hanson and other private lawyers actually will be paid more than $121 million.