A Message from the Director
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Lawsuits Are Trial Bar's New Cash Cow, James Copland, Washington Examiner, 10-25-11
Obama's CFPB Nominee
Abused Private Attorney Contracting in Ohio, James Copland, Washington Examiner, 10-25-11
Copland on Wall Street Journal Live
He discussed his new report, Trial Lawyers Inc.: Attorneys General on 10-27-11.
James Copland appeared on the following radio programs to discuss his new report, Trial Lawyers Inc.: Attorneys General:
FM News Talk 97.1's "Randy Tobler Show," 10-29-11
WABC's "John Batchelor Show," 10-27-11
WTPL's "Bulldog Live with Brian Tilton," 10-26-11
SBA's "Small Business Advocate with Jim Blasingame," 10-26-11
Honorable Edwin Meese, James Copland, and Professor Lester Brickman discussed
Trial Lawyers Inc: State Attorneys General in a nationwide conference call.
View the event.
IN THE NEWS
Contracts Criticized, Madison County Journal, 10-27-11
Report Details The Ties That
Bind AGs, Trial Lawyers, Forbes, 10-25-11
Miller Denounces Report Ranking Him Among Friendliest To Trial Lawyers' Agenda,
Politics New Report Exposes Cozy
Relationship Between State AGs and Trial Lawyers, The Blaze, 10-25-11
McGraw Criticized in National Report
on State Attorneys General, West Virginia Watch Dog, 10-25-11
Hood Says Political Foe Abused His Office at DPS,
Picayne Item, AP, 10-25-11
Report: Obama Nominee, Some AGs Too
Close To Plaintiffs Bar, Legal News Line, 10-25-11
State Attorneys General Rake in Trial
Lawyer Cash, Dole Out Contracts, Watchdog.org, 10-25-11
A PATH FORWARD
Disclosure and Oversight a Key to Reforming
Trial Lawyer–Attorney General Corruption
The giant windfall contingency fees given to lawyers in state-contracted mass-tort and class-action lawsuits have emerged as a major profit center for Trial Lawyers, Inc. Moreover, the fact that these windfall fees have often been subsequently diverted to the political campaigns of the state attorneys general who chose the lawyers and blessed the litigation creates at least an appearance of impropriety. To put a stop to such conflicts of interest and the appearance of self-dealing, states need to place restrictions on AGs’ discretion in jobbing out state business, and they need to review laws that give AGs a putative basis for such overreaching. As the body with jurisdiction over interstate commerce, Congress also has a role to play in ensuring that state attorneys general are not perversely preempting federal regulatory schemes.
Reforming Contingency-Fee Contracts
In 2011, the legislatures of Arizona and Indiana curtailed the ability of their respective attorneys general to enter into contingency-fee arrangements with private attorneys, becoming the ninth and tenth states to adopt versions of the Private Attorney Retention Sunshine Act (see below “Sunshine Is the Best Disinfectant”), model legislation developed by the American Legislative Exchange Council (ALEC), an organization that advances conservative and free-market reforms to state legislators around the nation. As the term “sunshine” would imply, Indiana’s newly enacted law requires contingency-fee contracts to be posted on state websites within 15 days of execution and requires the AG to make a full formal report of such contracts to the legislature to facilitate lawmakers’ oversight. ALEC’s model bill also calls for competitive bidding. Other model laws, such as the Attorney General Transparency Code, developed by the American Tort Reform Association (ATRA), and the State Attorney General Code of Conduct, developed by the U.S. Chamber of Commerce’s Institute for Legal Reform (ILR), join ALEC in calling for competitive bidding, full disclosure of contracts to the public at large, and legislative oversight. The ILR’s Code of Conduct would limit contingency-fee arrangements to debt collection and other exercises of the state’s proprietary, as distinct from police, power.
According to ATRA, which rates states that have enacted their own versions of the Sunshine Act as well as those that have not, none in the first group merited a grade lower than C. Some states without a Sunshine Act scored an A or a B (see chart), owing to general contracting rules or practices adopted by attorneys general without a legislative mandate. Maryland’s attorney general, Doug Gansler, for instance, deposits any litigation proceeds in the state’s general fund unless otherwise directed by court order—one reason his state earned a B without a Sunshine Act. ATRA gave Washington State a B as well, despite its lack of sunshine legislation, in part because of AG Rob McKenna’s regular practice of giving the legislature detailed reports on contingency-fee contracts.
While contingency-fee arrangements can both reflect and promote collusion between state attorneys general and the plaintiffs’ bar, AGs also have other methods at hand for doing so. As noted in the ILR’s Code of Conduct, state AGs can severely prejudice defendants’ cases with their public statements. Former New York attorney general Eliot Spitzer tended to try cases in the media—driving down share values of the companies he was targeting, for example, and building public pressure on companies to settle. In general, state AGs should refrain from potentially prejudicial public comment.
SUNSHINE IS THE BEST DISINFECTANT
The Private Attorney Retention Sunshine Act, developed by the American Legislative Exchange Council, calls for the following reforms of states’ attorney-contracting practices:
Competitive Bidding. The Sunshine Act requires competitive bidding for contingency-fee contracts. Competitive-bidding requirements are generally more effective than prohibitions on contracting with firms that have donated to an AG’s political campaign, since contributors can easily evade such prohibitions by funneling their contributions through political action committees like the Democratic Attorneys General Association. Some states enacting this provision have insisted on competitive bidding only above a certain dollar threshold; Arizona, for instance, calls for an open, competitive bidding process whenever fees are expected to exceed $100,000.
Legislative Oversight. The Sunshine Act requires legislative oversight over all contingency-fee contracts in which the expected contract value exceeds $1 million. This provision is intended to ensure that the legislature retains control over its public-policy prerogatives.
Fee Standards. The Sunshine Act asks attorneys expecting contingency fees to document the hours they worked. The contingency fee they ultimately receive may not exceed the total number of hours they worked on the matter multiplied by $1,000, the maximum putative hourly rate they may charge. This provision is intended to reestablish the relationship between effort and reward and to place limits on the size of windfall fees, which are essentially diversions of money intended to compensate taxpayers and the government. Some states have adopted the alternative of placing a dollar limit on total fees paid; Indiana, for instance, caps fees at 5 percent of damages awarded that exceed $25 million, with a maximum possible award of $50 million.
Also, the threat of criminal process can be used to drive up the value of civil actions, much as Mississippi AG Jim Hood’s threatened criminal actions drove up the value of private attorney Dickie Scruggs’s civil actions in post-Katrina litigation. Generally, when other types of attorneys make criminal threats to obtain leverage in a civil proceeding, it is an ethical violation, and it should be deemed one for attorneys general as well.
Finally, state legislatures should examine the ways in which existing laws enable attorneys general to abuse their power. State consumer-fraud statutes, or open-ended vehicles such as New York’s Martin Act, which do not demand a showing that someone relied on the fraud being alleged and was injured by it—an essential feature of common-law fraud cases—unleash aggressive AGs and victimize defendants. Many modern criminal statutes, in fact, dispense altogether with the traditional demand for a showing of criminal intent, or mens rea. And in many states, corporations can be held liable, criminally as well as civilly, for the actions of lower-level employees, even if those employees acted contrary to express corporate policy. Such erosions of time-honored, common-law due process should be reversed.
While the primary responsibility for reforming abuses committed by state attorneys general rests with the states themselves, Congress certainly has an interest in protecting interstate commerce, as well as its own legislative prerogatives, from the interference of state AGs, who sometimes launch multistate actions in combination with their peers. In appropriate circumstances, Congress should explicitly preempt state laws that allow state AGs to venture where Congress has a constitutional obligation to hold sway.
Moreover, Congress should resist the temptation to “deputize” state AGs to enforce federal law—as the recent Dodd-Frank reforms have done, to some extent. Although such measures can leverage federal resources, they sacrifice a federal perspective on matters of national import, substituting the parochial perspective of the most aggressive state AG, who is then able to set the enforcement standard for his brethren by reshaping national practices, as Spitzer did with the financial and insurance industries.
Still, modest progress continues. Three states have implemented sunshine reforms in just the last two years; and last year, under the leadership of North Carolina attorney general Roy Cooper, the National Association of Attorneys General instituted an educational program for its members on the pitfalls of contingency-fee arrangements. Still, 40 of the 50 states have failed to take affirmative legislative steps to curb abuses, and 36 states have received a D or an F grade on the transparency of their contracting processes. As happened after the implosion of the dot-com bubble, the recent financial crisis could spur today’s AGs to initiate lawsuits and make their mark. Although tort reform has generally succeeded in scaling back the worst abuses of our overly litigious society, many state AGs still show a reflexive allegiance to the plaintiffs’ bar. Let’s hope that the makers of laws in the various states—the legislatures—take further steps to rein in those who are supposed to be no more than the law’s enforcers.
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See ALEC, State Contracts with Private Attorneys A Call for Sunshine, http://www.alec.org/AM/Template.cfm?Section=PARSA&Template=/CM/HTMLDisplay.cfm&ContentID=15289 (last visited October 4, 2011).
135. See ATRA, supra note 14.
See ILR, Summary of the State Attorney General Code of Conduct, www.instituteforlegalreform.com/get_ilr_doc.php?id=1068 (last visited October 4, 2011).
137. See ATRA, supra note 14.
ALEC, Private Attorney Retention Sunshine Act, Jan. 1, 2009, available at http://heartland.org/sites/default/files/sites/all/modules/custom/heartland_migration/files/pdfs/7857.pdf (last visited October 4, 2011) (text of the model legislation as drafted and proposed by ALEC).
139. Martin Act, N.Y. Gen. Bus. Law art. 23-A (McKinney 1996).
140. See Copland, supra note 84.
See Marie Gryphon, It’s a Crime: Flaws in Federal Statutes That Punish Standard Business Practice, in Manhattan Inst. for Pol’y Res, Civ. Just. Rep. No. 12 (Dec. 2009), available at http://www.manhattan-institute.org/html/cjr_12.htm.
See James R. Copland, Regulation by Prosecution: The Problems with Treating Corporations as Criminals, in Manhattan Inst. for Pol’y Res, Civ. Just. Rep. No. 13 (Dec. 2010), available at http://www.manhattan-institute.org/html/cjr_13.htm.
143.See ATRA, Supra note 14.