Governments and tort 'reformers' clash over the hiring of private lawyers.

In litigation brought by state attorneys general (AGs) and other government lawyers, there's one point that scholars, private lawyers, state officials, and tort "reformers" agree on: The use of outside counsel by the government must be undertaken with care. Exactly what that care entails has drawn attention recently as some AGs and their state legislatures have sought to change the way the government uses private lawyers, and as defendants in AG-led lawsuits have tried to limit the role of private attorneys in those cases.

President Bush has joined the call for restrictions on the use of private lawyers in cases brought by governments. Citing the need for "reasonable compensation" for attorneys working for the government, he signed an executive order in May barring federal agencies from hiring contingent fee lawyers--even though they rarely do so.

Critics say the move was a nod to corporate defendants who want to limit state governments' ability to enlist help from attorneys with specific litigation expertise--a critical need in many government lawsuits, according to spokespeople in several state AGs' offices.

"We pick outside counsel in their particular areas of expertise where we do not have the numbers here in our own division of law," said David Wald, a spokesman for New Jersey Attorney General Stuart Rabner.

Leo Jennings, communications director for Ohio Attorney General Marc Dann, noted that hiring outside counsel ensures "that we can walk into court and represent the people's interests every bit as competently and zealously as the companies are defended."

Defendants are asking courts to limit the practice by targeting contingent fees. For instance, Tyson Foods, a defendant in a poultry-litter-pollution lawsuit undertaken by the Oklahoma AG, recently filed two motions to ensure that any damages awarded to the state would not be used to pay contingent fees of private lawyers. (Okla. v. Tyson Foods, No. 05CV0329 (N.D. Okla. filed June 13, 2005).)

Similarly, in litigation brought by Rhode Island's AG against lead paint makers, the defendants recently argued that contingent fee agreements between the AG and private lawyers in the case violate the defendants' due process right; that right, they argued, "guarantees that the authority to exercise the state's police power may not be granted to someone with an incentive to use it for his own financial gain." (R.I. v. Lead Paint Indus., Inc., 898 A.2d 1234 (R.I. 2006).) In both lawsuits, the U.S. Chamber of Commerce and the American Tort Reform Association (ATRA) filed amicus briefs supporting limitations on the use of private lawyers.

This year, the AGs of Ohio and New Jersey instituted new rules for selecting private lawyers to assist in their litigation, which they say will lend more openness and fairness to the selection process--and will avoid charges of political cronyism that have in the past haunted AGs who have hired political donors. And several states, including Mississippi and West Virginia, have recently introduced legislation that would require more open reporting of, or set specific rules for, the hiring and fees of private lawyers used by the government. In 2006, New Jersey enacted restrictions on so-called pay-to-play contracts with state entities, including the AG, in which political donors received state business.

For Seattle lawyer Steve Berman, this push for change represents a reaction to large fees that states paid to plaintiff lawyers involved in the tobacco litigation of the 1990s, in which state AGs recruited private attorneys to help them recoup from the industry billions of dollars in state health-care expenditures related to smokers' illnesses.

"Before tobacco, there were some states that required contracts with outside lawyers to be bid," said Berman, whose firm handled tobacco litigation for several states. "There were other states where, as far as I could tell, there was no competition, no public process, and very little scrutiny of fees. The latter is probably rare nowadays: I don't think there are many states where the AGs are not paying attention to this issue."

Charles Silver, a professor at the University of Texas School of Law and an expert on civil procedure and professional responsibility, agreed.

"When the fees [for the tobacco litigation] were set in Texas, for example, the retainer agreement was released to the public at a press conference. At that time, no one argued that 15 percent was too high. This includes then-Gov. George W. Bush and the many tort reformers who later claimed the fee was too high. Everybody knew the risks were enormous, and nobody expected the lawyers to be paid.

"But when the case settled, and the private attorneys seemed likely to be paid, all hell broke loose. This was simple political opportunism with no support in the law governing contingent fees."

Fees under fire

Those who oppose government use of private attorneys say contingent fees improperly give the lawyers a financial stake in the outcome of government lawsuits and that lawyers pursing litigation on behalf of the taxpayers must adhere to a "standard of neutrality"--that is, they may not have a personal interest in the case--that was first articulated in a 1985 California Supreme Court ruling in Clancy v. Superior Court. (39 Cal. 3d 740 (1985).)

The court called the contingent fee agreement between a city government and a private attorney in a lawsuit against an adult bookstore "inappropriate under the circumstances." It held that the contract was "antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action."

The court also noted that the use of contingent fee lawyers in criminal prosecutions is considered unethical. "A suit to abate a public nuisance can trigger a criminal prosecution of the owner of the property. This connection between the civil and criminal aspects of public nuisance law further supports the need for a neutral prosecuting attorney," the court wrote.

Defendants and tort "reformers" echo those concerns as they seek to limit the use of private lawyers in government cases. In an April press release, ATRA President Sherman Joyce noted that contingent fees in contracts between personal injury firms and state AGs "give private lawyers, backed by state authority, a pernicious incentive to maximize the damage awards a defendant may be obligated to pay."

Jack McConnell, a lawyer in Providence, Rhode Island, whose firm is involved in Rhode Island's and Ohio's lead paint litigation, said ATRA's argument is baseless.

"If a plaintiff lawyer has a financial interest in the outcome of a case because of a contingent fee, a defense lawyer has an equal financial interest in pursuing needless and endless litigation, because he gets paid by the hour. A financial interest is a financial interest," McConnell said.

"All lawyers in private practice are businesspersons," said Silver. "All take cases to make profits. There is no reason to put one sort of practitioner above another."

But Clancy has not lost its sway. In April, a California county judge ruled that a local government bringing a suit against lead paint manufacturers was barred from using private lawyers, citing Clancy's "standard of neutrality." (Co. of Santa Clara v. Atlantic Richfield, No. 1-00-CV-788657 (Cal., Santa Clara Co. Super. Apr. 4, 2007).)

Lead paint defendants in Rhode Island and Ohio have used the Santa Clara and Clancy decisions to support their argument against government use of private attorneys. In the Ohio case, a federal judge ruled from the bench that the city of Columbus could use private lawyers. (Sherwin-Williams Co. v. Columbus, No. 2:06cv829 (S.D. Ohio June 19, 2007).) But with the deferral of this issue by Rhode Island's high court, the defendants in that state's case are still hoping to have contingent fee lawyers prohibited when that court hears their full appeal.

Some defendants are pointing to statutory provisions. In the Oklahoma pollution lawsuit against Tyson Foods, the company filed a motion to dismiss, citing a Tenth Circuit decision in New Mexico v. General Electric Co. (467 E3d 1223 (10th Cir. 2006).) That court barred the use of damages awarded in lawsuits brought under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for anything other than remediation of the natural resources at issue in the suits, including paying private lawyers on a contingency basis. Tyson argued that the New Mexico decision applied to Oklahoma's case.

Tyson also raised constitutional arguments. The company filed another motion arguing that due process "forbids those who exercise the power of the state from profiting from the exercise of that power" and that a contingent fee contract between the state and a private lawyer "violates the separation of powers provision of the Oklahoma Constitution."

The judge denied both motions without issuing an opinion. A newspaper report quoted the judge as saying that the CERCLA issue could be brought later, after he has decided whether the statute applies. And Jay Jorgensen, a lawyer for Tyson in Washington, D.C., said that the judge noted that the other motion might be certified to the Oklahoma Supreme Court. At the judge's direction, the two sides are discussing whether it should be certified.

Risk tolerance 

In New Mexico, rules about the hiring of outside counsel by the state have meant significant risk for private firms undertaking the state's work, said Rachel Abrams, a San Francisco attorney. Her firm is pursuing litigation for that state against the maker of Zyprexa, an antipsychotic drug that the state claims causes hyperglycemia and other diabetes-related conditions.

The rules call for any private attorneys hired by New Mexico's AG to be awarded fees based on a court order after the lawsuit ends. Albert Lama, chief deputy attorney general for the state, said this ensures that the fees are reasonable and that the legislature is not bound by a contingent debt, which he said "could be argued is prohibited under our constitution."

Despite the fact that a court could award fees at a higher rate that her firm might get in work for other states, Abrams recognizes than her firm could end up with nothing, even if the case is successful.

"Assuming the cost up front with a potential of zero recovery at the end of the line is an added risk that may [prevent] a plaintiff firm from wanting to get involved with the state," she said.

Contingent fee lawyers' willingness to take on financial risk is vital to the state's ability to pursue litigation in the public interest, said Ohio AG spokesman Jennings.

"We can't walk across the street and go to the statehouse and say, 'We need $8 [million] or $9 million because we're going to engage in five years of litigation to recover money on behalf of taxpayers,'" he said. "If we are not allowed to use contingent fee lawyers who are willing to put up the money and undertake discovery with the participation of our lawyers, then we would be totally disarmed, because there isn't money in a state budget that's trying to pay for education and to pave roads to undertake this litigation."

Neil Kelly, assistant AG in Rhode Island, echoed that sentiment, saying that hiring outside lawyers helps "level the playing field" against corporate defendants with far more resources.

"At one point [in the state's lead paint litigation], there were somewhere on the order of 120 lawyers who made appearances on behalf of the defendants. In our office, we have 13 people in our government litigation unit, and 3 were assigned to this case," he said. "Really, it's about access to justice and about being able to pursue it in the end."