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Contingency Fees and Lobbying and Contracting with Attorneys General
Monday, December 22nd, 2014
Robert Wechsler
There is a lot of disagreement over whether contingency fee
arrangements between client and lobbyist should be permitted. Many cities,
counties, and states prohibit arrangements where lobbyists are paid
only if they succeed. The principal reason is that this arrangement encourages ethical misconduct. It
encourages lobbyists to do everything they can to win, which may be good in a private adversary suit, but is not appropriate in a public context, where winning
involves changes in public policy or obtaining public contracts, grants, or
permits.
Historically, courts have seen contingency fee arrangements relating to government action as leading to corruption and harmful to the public's trust in its government. But lawyers have argued that it works well for them, and allows more people to hire lobbyists (although there is no evidence that this actually occurs).
An investigative piece in the New York Times last week shows what can happen when lawyers being paid via contingency fee arrangements lobby state attorneys general. What the lawyers are lobbying for is to have AGs bring suits that will help their clients, and them, win their cases. These lawyers are acting as procurement lobbyists, for themselves and their clients.
AGs argue that they need the resources of law firms to bring such suits (which contend that consumers have been harmed by big companies). But there is much more involved in these transactions. Many of the plaintiffs' lawyers who bring these suits are former AGs who have personal and political relationships with current AGs.
There are usually large campaign contributions involved, as well. "Over all, plaintiffs’ firms have donated at least $9.8 million directly to state attorneys general and political groups related to attorneys general over the last decade."
When plaintiffs' firms don't have a former AG in-house, they turn to former AGs who act as brokers, pitching cases (i.e. lobbying) for these law firms. When many millions of dollars in legal fees are involved, there's a lot to go around.
It would appear that everyone's a winner. State governments make lots of money when these cases are won and spend less money on cases that are lost, the lawyers do well, and incumbent attorneys general get big war chests to help them stay in office.
But then why is there disagreement over the value of these arrangements, even among AGs. For example, Colorado's AG is quoted as saying, “Farming out the police powers of the state to a private firm with a profit incentive is a very, very bad thing.” And a former Massachusetts AG is quoted as saying that this practice "seriously threatens the perception of integrity and professionalism of the office, as it raises the question of whether attorneys are taking up these cases because they are important public matters, or they are being driven more by potential for private financial gain.”
Some of the companies that have been sued by AGs under these arrangements have made counterclaims that "the attorneys general improperly turned over state law enforcement powers to private parties, citing their financial incentive to push ahead with cases against them, even if the facts did not support the claims." Contracting out work is one thing; contracting out the responsibility over cases is another.
Also problematic is the fact that these AG-law firm arrangements are no-bid arrangements. This means that the state pays millions of dollars to a law firms that has not bid for the job and that has made large campaign contributions to the office that has entered into a contract with it. This looks to the all the world like bribery.
Or pay to play. That's how one federal judge described the situation last year, arguing that cases filed by AGs should not become “a vehicle for keeping elected officials in office by allowing them to extract campaign contributions from lawyers selected to serve as class counsel.”
Some states are trying to limit these arrangements. In the last two years, at least 14 states have adopted new rules that generally require AGs to make a specific “finding of need for outside counsel.” Some of them now require competitive bidding and a limit on legal fees. They have treated these issues as procurement issues, not as government ethics, lobbying, or campaign finance issues.
Government Ethics Solutions
From a government ethics perspective, three additional things could be done. One, state lobbying codes need to include the lobbying of attorneys general (just as local lobbying codes cannot exclude city or county attorneys). They are too often excluded by definitions of "lobbying" that are limited to the lobbying of legislators or of only a limited list of executive positions or offices. The lobbying of government attorneys should be disclosed just like any other lobbying. We can't hope that newspapers will do in-depth investigations to find out what has been going on.
Two, contingency fee arrangements with lobbyists should be prohibited to prevent the appearance of bribery and pay to play that has occurred in these cases. However valuable such arrangements may be for consumers and accident victims, they are inappropriate to lobbying. A lawyer who enters into such an arrangement should not lobby, directly or indirectly.
Three, lawyers seeking to work as AG contractors should be prohibited from making campaign contributions. And anyone who has made campaign contributions should not be permitted to get a contract.
There is certainly a value in AGs farming out work in legal cases. And there can be a value in having AGs join private suits to protect consumers. But if an AG wants to do the former, he should follow ordinary procurement processes. And if an AG wants to do the latter, she should establish a formal process for handling requests to join private suits.
And with respect to either, even if it is perfectly legal, an AG should make it clear that campaign contributions are prohibited before, during, and for at least a couple of years after entering into an arrangement with an attorney or law firm. What no AG should ever say is what one AG's office told the Times:
Robert Wechsler
Director of Research-Retired, City Ethics
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Historically, courts have seen contingency fee arrangements relating to government action as leading to corruption and harmful to the public's trust in its government. But lawyers have argued that it works well for them, and allows more people to hire lobbyists (although there is no evidence that this actually occurs).
An investigative piece in the New York Times last week shows what can happen when lawyers being paid via contingency fee arrangements lobby state attorneys general. What the lawyers are lobbying for is to have AGs bring suits that will help their clients, and them, win their cases. These lawyers are acting as procurement lobbyists, for themselves and their clients.
AGs argue that they need the resources of law firms to bring such suits (which contend that consumers have been harmed by big companies). But there is much more involved in these transactions. Many of the plaintiffs' lawyers who bring these suits are former AGs who have personal and political relationships with current AGs.
There are usually large campaign contributions involved, as well. "Over all, plaintiffs’ firms have donated at least $9.8 million directly to state attorneys general and political groups related to attorneys general over the last decade."
When plaintiffs' firms don't have a former AG in-house, they turn to former AGs who act as brokers, pitching cases (i.e. lobbying) for these law firms. When many millions of dollars in legal fees are involved, there's a lot to go around.
It would appear that everyone's a winner. State governments make lots of money when these cases are won and spend less money on cases that are lost, the lawyers do well, and incumbent attorneys general get big war chests to help them stay in office.
But then why is there disagreement over the value of these arrangements, even among AGs. For example, Colorado's AG is quoted as saying, “Farming out the police powers of the state to a private firm with a profit incentive is a very, very bad thing.” And a former Massachusetts AG is quoted as saying that this practice "seriously threatens the perception of integrity and professionalism of the office, as it raises the question of whether attorneys are taking up these cases because they are important public matters, or they are being driven more by potential for private financial gain.”
Some of the companies that have been sued by AGs under these arrangements have made counterclaims that "the attorneys general improperly turned over state law enforcement powers to private parties, citing their financial incentive to push ahead with cases against them, even if the facts did not support the claims." Contracting out work is one thing; contracting out the responsibility over cases is another.
Also problematic is the fact that these AG-law firm arrangements are no-bid arrangements. This means that the state pays millions of dollars to a law firms that has not bid for the job and that has made large campaign contributions to the office that has entered into a contract with it. This looks to the all the world like bribery.
Or pay to play. That's how one federal judge described the situation last year, arguing that cases filed by AGs should not become “a vehicle for keeping elected officials in office by allowing them to extract campaign contributions from lawyers selected to serve as class counsel.”
Some states are trying to limit these arrangements. In the last two years, at least 14 states have adopted new rules that generally require AGs to make a specific “finding of need for outside counsel.” Some of them now require competitive bidding and a limit on legal fees. They have treated these issues as procurement issues, not as government ethics, lobbying, or campaign finance issues.
Government Ethics Solutions
From a government ethics perspective, three additional things could be done. One, state lobbying codes need to include the lobbying of attorneys general (just as local lobbying codes cannot exclude city or county attorneys). They are too often excluded by definitions of "lobbying" that are limited to the lobbying of legislators or of only a limited list of executive positions or offices. The lobbying of government attorneys should be disclosed just like any other lobbying. We can't hope that newspapers will do in-depth investigations to find out what has been going on.
Two, contingency fee arrangements with lobbyists should be prohibited to prevent the appearance of bribery and pay to play that has occurred in these cases. However valuable such arrangements may be for consumers and accident victims, they are inappropriate to lobbying. A lawyer who enters into such an arrangement should not lobby, directly or indirectly.
Three, lawyers seeking to work as AG contractors should be prohibited from making campaign contributions. And anyone who has made campaign contributions should not be permitted to get a contract.
There is certainly a value in AGs farming out work in legal cases. And there can be a value in having AGs join private suits to protect consumers. But if an AG wants to do the former, he should follow ordinary procurement processes. And if an AG wants to do the latter, she should establish a formal process for handling requests to join private suits.
And with respect to either, even if it is perfectly legal, an AG should make it clear that campaign contributions are prohibited before, during, and for at least a couple of years after entering into an arrangement with an attorney or law firm. What no AG should ever say is what one AG's office told the Times:
“Whether or not an individual makes a campaign contribution during an election cycle has no bearing on any decisions made by the office of attorney general or its career attorneys who adhere to the highest standards of professionalism.”The highest standards of professionalism require that an AG consider the appearance of impropriety and do what is necessary to prevent it. What this AG has done appears highly improper.
Robert Wechsler
Director of Research-Retired, City Ethics
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