You are here
Criminal vs. Ethics Enforcement of Lobbying Laws: A Case in Massachusetts
Friday, August 22nd, 2014
Robert Wechsler
There are several problems with the settlement the Massachusetts AG
reached last week with a lobbying firm that the AG alleged had
entered into an illegal contingency fee agreement with a hospital.
According to the
AG's press release, the lobbying firm would be paid a
percentage of funds paid to the hospital pursuant to legislation the
lobbyist would try to help get passed.
The Prosecutor
The biggest problem is the office that prosecuted the case. Because the state ethics commission is not given authority to pursue allegations under the lobbying code, such allegations become political footballs and undermine trust that they are being fairly pursued. In this case, the politics involves an elected official (the AG) who is running for governor and has received campaign contributions from members of the lobbying firm, including one $500 contribution weeks before the settlement was reached, according to a Boston Herald article this week.
In addition, according to a Boston Globe article yesterday, the Massachusetts secretary of state (also an elected position, and the office that oversees the lobbyist registration program) announced that he has launched his own inquiry into the matter, to see if the lobbying firm had contingency fee arrangements with other clients. This should have been part of the original investigation.
Elected officials should not have authority over enforcement against lobbyists who give them (or choose not to give them) campaign contributions, who are lobbied by these individuals and, in many cases, have served in office with these individuals before they retired and became lobbyists. The result in this case is that the AG is seen as being soft on lobbyists when she made what might otherwise have been considered a reasonable settlement.
Criminal vs. Administrative Enforcement
Another problem with AG prosecution is that enforcement is criminal. Due to high evidentiary standards and high costs, criminal enforcement requires settling for a smaller sum than in an administrative, ethics enforcement process, which has lower evidentiary standards and lower costs. In other words, it is more risky and expensive to pursue a criminal case than it is to pursue an ethics enforcement proceeding. Therefore, giving the job to the AG makes enforcement less likely and settlements lower.
The Settlement
The lobbyist was paid $370,000 in contingency fees, and was required by the settlement to return $100,000 to the hospital. We don't know what the lobbyist would have been paid had there been a legal arrangement, but this is certainly a substantial sum.
There are two big problems with the settlement other than the sum returned, which has been the focus on news reports. The first problem is that the lobbyist did not admit to having had a contingency fee arrangement, and does not appear to have been investigated with respect to other such arrangements (which might have made the settlement far higher). According to the Globe article, the lobbyist "argued that because the ultimate decision was made by Health and Human Services officials — and not the legislators it lobbied under its contract with Franciscan — there was no true contingency fee arrangement." In contrast, the state ethics commission will not enter into a settlement if the respondent does not admit to an ethics violation.
According to the Herald article, the AG has argued that the 40-year-old contingency fee provision is "unclear or not drafted very well" and has not been litigated much, so that she had no choice other than to settle. But the language of the provision is clear and common: “No person shall make any agreement whereby any compensation ... is to be paid to any person contingent upon a decision...or the passage or defeat of any legislation.” The payments were contingent upon the decision to make payments to the hospital, which was based indirectly on the passage of legislation. It appears that the fee arrangement acknowledged the relationship between the legislation, the decision, and the payments. It is true that the lobbyist did not directly affect the amount of the payments, but it did affect the making of these payments to the hospital and the fee was based on a percentage of the payments' amounts.
In any event, the AG states in her press release that there was a contingency fee arrangement and ignores the important fact that the lobbyist did not admit to having entered into such an arrangement. This is irresponsible, provides no clear guidance to other lobbyists, and is harmful to future prosecutions of the prohibition.
The Purpose of a Contingency Fee Prohibition
The second big problem with the settlement involves the decision to give all the money to the hospital. This leads to a consideration of the purpose of a contingency fee prohibition. Is it meant to protect only the client, so that a refund to the client would make things right? Or is it also meant to protect the public from clients who are willing to give their lobbyist a personal rather than professional interest in getting government decisions made?
Courts have for a long time considered contingency fees to lobbyists as contrary to public policy, because they focus the attention of lobbyists not on informing and seeking to influence, but rather on obtaining concrete results, by any means possible. The courts therefore saw contingency fees as “inflaming the avarice” of people whom they already felt were not acting in the public interest. According to Zephyr Teachout’s 2014 essay “The Forgotten Law of Lobbying,” high contingency fees were referred to as “bribes,” because they encouraged bribery as the most direct way to ensuring payment. This is why, Teachout states, “contingent fee arrangements for political influence were almost always void.”
What are contingency fee arrangements but sales commissions? Lobbying is not meant to be a form of sales. It is supposed to be something protected by the First Amendment right to seek redress of grievances. A sales commission on seeking redress has long been considered inappropriate, and it has been prohibited not to protect lobbyists' clients, but to protect the public by protecting the institutions that govern our society.
Therefore, a lobbying firm (and client) that enter into a contingency fee arrangement should be fined. Not only does this send the message that such arrangements are against public policy, but it also sends the message that there will be more than a mere decrease in a potentially very large fee, and that the client too has something to lose. It is hard to imagine the state EC not levying a fine in this case.
Conclusion
Lobbying law enforcement in Massachusetts should be turned over to the state EC, so that it can be pursued independently, by non-politicians, in administrative rather than criminal proceedings, and with settlements that require admission of misconduct, that levy fines, and that send the right messages to both lobbyists and their clients.
At the local level, it's also best to have the EC rather than the DA or city or county attorney have jurisdiction over the enforcement of lobbying laws.
Robert Wechsler
Director of Research-Retired, City Ethics
---
The Prosecutor
The biggest problem is the office that prosecuted the case. Because the state ethics commission is not given authority to pursue allegations under the lobbying code, such allegations become political footballs and undermine trust that they are being fairly pursued. In this case, the politics involves an elected official (the AG) who is running for governor and has received campaign contributions from members of the lobbying firm, including one $500 contribution weeks before the settlement was reached, according to a Boston Herald article this week.
In addition, according to a Boston Globe article yesterday, the Massachusetts secretary of state (also an elected position, and the office that oversees the lobbyist registration program) announced that he has launched his own inquiry into the matter, to see if the lobbying firm had contingency fee arrangements with other clients. This should have been part of the original investigation.
Elected officials should not have authority over enforcement against lobbyists who give them (or choose not to give them) campaign contributions, who are lobbied by these individuals and, in many cases, have served in office with these individuals before they retired and became lobbyists. The result in this case is that the AG is seen as being soft on lobbyists when she made what might otherwise have been considered a reasonable settlement.
Criminal vs. Administrative Enforcement
Another problem with AG prosecution is that enforcement is criminal. Due to high evidentiary standards and high costs, criminal enforcement requires settling for a smaller sum than in an administrative, ethics enforcement process, which has lower evidentiary standards and lower costs. In other words, it is more risky and expensive to pursue a criminal case than it is to pursue an ethics enforcement proceeding. Therefore, giving the job to the AG makes enforcement less likely and settlements lower.
The Settlement
The lobbyist was paid $370,000 in contingency fees, and was required by the settlement to return $100,000 to the hospital. We don't know what the lobbyist would have been paid had there been a legal arrangement, but this is certainly a substantial sum.
There are two big problems with the settlement other than the sum returned, which has been the focus on news reports. The first problem is that the lobbyist did not admit to having had a contingency fee arrangement, and does not appear to have been investigated with respect to other such arrangements (which might have made the settlement far higher). According to the Globe article, the lobbyist "argued that because the ultimate decision was made by Health and Human Services officials — and not the legislators it lobbied under its contract with Franciscan — there was no true contingency fee arrangement." In contrast, the state ethics commission will not enter into a settlement if the respondent does not admit to an ethics violation.
According to the Herald article, the AG has argued that the 40-year-old contingency fee provision is "unclear or not drafted very well" and has not been litigated much, so that she had no choice other than to settle. But the language of the provision is clear and common: “No person shall make any agreement whereby any compensation ... is to be paid to any person contingent upon a decision...or the passage or defeat of any legislation.” The payments were contingent upon the decision to make payments to the hospital, which was based indirectly on the passage of legislation. It appears that the fee arrangement acknowledged the relationship between the legislation, the decision, and the payments. It is true that the lobbyist did not directly affect the amount of the payments, but it did affect the making of these payments to the hospital and the fee was based on a percentage of the payments' amounts.
In any event, the AG states in her press release that there was a contingency fee arrangement and ignores the important fact that the lobbyist did not admit to having entered into such an arrangement. This is irresponsible, provides no clear guidance to other lobbyists, and is harmful to future prosecutions of the prohibition.
The Purpose of a Contingency Fee Prohibition
The second big problem with the settlement involves the decision to give all the money to the hospital. This leads to a consideration of the purpose of a contingency fee prohibition. Is it meant to protect only the client, so that a refund to the client would make things right? Or is it also meant to protect the public from clients who are willing to give their lobbyist a personal rather than professional interest in getting government decisions made?
Courts have for a long time considered contingency fees to lobbyists as contrary to public policy, because they focus the attention of lobbyists not on informing and seeking to influence, but rather on obtaining concrete results, by any means possible. The courts therefore saw contingency fees as “inflaming the avarice” of people whom they already felt were not acting in the public interest. According to Zephyr Teachout’s 2014 essay “The Forgotten Law of Lobbying,” high contingency fees were referred to as “bribes,” because they encouraged bribery as the most direct way to ensuring payment. This is why, Teachout states, “contingent fee arrangements for political influence were almost always void.”
What are contingency fee arrangements but sales commissions? Lobbying is not meant to be a form of sales. It is supposed to be something protected by the First Amendment right to seek redress of grievances. A sales commission on seeking redress has long been considered inappropriate, and it has been prohibited not to protect lobbyists' clients, but to protect the public by protecting the institutions that govern our society.
Therefore, a lobbying firm (and client) that enter into a contingency fee arrangement should be fined. Not only does this send the message that such arrangements are against public policy, but it also sends the message that there will be more than a mere decrease in a potentially very large fee, and that the client too has something to lose. It is hard to imagine the state EC not levying a fine in this case.
Conclusion
Lobbying law enforcement in Massachusetts should be turned over to the state EC, so that it can be pursued independently, by non-politicians, in administrative rather than criminal proceedings, and with settlements that require admission of misconduct, that levy fines, and that send the right messages to both lobbyists and their clients.
At the local level, it's also best to have the EC rather than the DA or city or county attorney have jurisdiction over the enforcement of lobbying laws.
Robert Wechsler
Director of Research-Retired, City Ethics
---
Story Topics:
- Robert Wechsler's blog
- Log in or register to post comments
