State's no-bid contracts with private law firms prompt scrutiny

| Saturday, Jan. 24, 2015, 10:00 p.m.

HARRISBURG — Private law firms could reap millions of dollars in fees from civil litigation they are pursuing on behalf of Pennsylvania taxpayers.

But don't ask state Attorney General Kathleen Kane to say why she hired the law firms.

Those matters are “under investigation and not public at this time,” said Renee Martin, a Kane spokeswoman.

Four law firms received three no-bid contracts for the secret investigations. The firms and their lawyers donated a combined $191,400 to Kane's campaign from 2011 to 2013, records show.

They are among nine outside firms holding contracts with Kane's office which, with some of their employees, donated at least $362,199 collectively to her campaign.

The donors received no special consideration for work, Martin said.

Open records advocates say the state's Right to Know Law allows exemptions for civil investigations, but they insist the law should be strengthened for more disclosure. There is no time limit on how long such records can be withheld. Investigations typically would become public if someone filed a lawsuit.

“The Right to Know Law does not authorize agencies to withhold financial records from the public,” said Paula Knudsen, general counsel for the Pennsylvania NewsMedia Association. “The law is designed to allow accountability for the expenditure of public funds.”

State Rep. Tim Krieger, R-Hempfield, is filing legislation again that would requireimmediate posting of these types of legal contracts on state websites and limits on contingency fees. His bill won House approval last session and died in the Senate.

The Cohen, Milstein, Sellers & Toll PLLC law firm, which gave Kane's campaign $10,000, is looking into nursing home groups, said Walter Cohen, former acting attorney general who represents nursing homes. A spokeswoman with the firm, which has an office in Philadelphia and five other states, declined to comment.

The contract with Pennsylvania was signed in 2012 under then-Attorney General Linda Kelly, a Republican interim appointee, Kane's office said.

Kane, a Democrat elected in 2012, amended the contract to adjust the fee scale.

Fees in most of the contracts are structured on a “contingency” basis, meaning the law firms typically get 20 to 25 percent of any final award — which ultimately could reap tens of millions for the state. The firms get nothing if their efforts are unsuccessful.

Those are the types of contracts Krieger's bill targets.

“The best way to guard against potential abuse, and to ensure that public officials are acting in the best interests of the people of Pennsylvania, is to expose these arrangements to the light of public scrutiny,” said Krieger.

Specialization, resources

About 19 states have some type of transparency laws governing contingency contracts, according to the U.S. Chamber Institute for Legal Reform in Washington. About a dozen states require competitive bidding, except in special circumstances.

The new attorney general of New Mexico, Hector Balderas, told reporters this month that he is looking into the office's practice of hiring private law firms and will decide whether to change that, a spokesman said.

Kane has about 180 lawyers on staff. But Aaron Sadler, Kane's communications director, said employing outside firms is necessary because of their “specialization and greater resources in specific areas, which make it to the benefit of the commonwealth to retain their services.”

The civil litigation Kane has pursued is part of a national trend of consumer-type lawsuits filed by attorneys general using private firms, stemming from the tobacco settlement litigation initiated two decades ago by 46 attorneys general.

“This all began with the tobacco litigation,” said Cohen.

That settlement by tobacco companies was intended to compensate taxpayers for Medicaid costs of health care for people with cancer and other illnesses related to cigarette use. To date, Pennsylvania has received $5 billion from the 1998 settlement, according to the Office of Budget.

“Recent years have seen a significant increase in the use of private contingency-fee attorneys by governors and attorneys general, both here in Pennsylvania and nationally,” Krieger said. “While many of these arrangements may well be proper, Pennsylvania lacks uniform policies to govern such arrangements and to guard against the temptation to use these arrangements to advance private interests.”

Contingency fee lawsuits

Kane's office in 2013 paid $1.6 million to Orrick, Herrington and Sutcliffe, a global firm that helped obtain $126 million in tobacco funds for Pennsylvania, her office said. The firm was not a campaign contributor.

Cohen Milstein's lawsuit on behalf of former New Mexico Attorney General Gary King was included in a New York Times story last month detailing how former attorneys general were making pitches for contingency fee lawsuits.

Linda Singer, former attorney general of the District of Columbia, pitched the suit to King, the story said. Singer declined to comment to the Tribune-Review. She told the Times that there was “no shame about anything we do here.”

Since the 1998 tobacco settlement, state attorneys general have branched out to file lawsuits on matters ranging from financial fraud to overcharges by pharmaceutical companies, often using outside law firms.

Business groups cry foul, saying there are conflicts of interest with many of the law firms contributing to attorneys general campaigns. Supporters say such lawsuits level the playing field against big corporations.

“We represent a wide variety of members: from Main Street to Wall Street,” said Lisa Rickard, president of the chamber's Institute for Legal Reform.”What we're advocating is an attorneys general sunshine bill.” The institute emphasizes “transparency, competitive bidding and reasonable caps on fees.”

Kane's office would not disclose the purpose of contracts with two other firms: Golomb & Honik of Philadelphia, which donated $17,100 to Kane's campaign; and two firms holding the other contract, Grant & Eisenhofer, with offices in Wilmington, Del., New York, Washington and Chicago, and Dallas-based Baron & Budd. Grant & Eisenhofer and its employees gave Kane $144,300 from 2011 to 2013; Baron & Budd and employees donated $20,000.

The firms declined to comment.

‘It does have value'

Cohen, the former Pennsylvania acting attorney general, sees both sides of the issue because he worked for state governments filing lawsuits and defends nursing home groups. He has worked for pension funds in other states engaged in lawsuits over allegations of financial fraud and illegalities by companies in which they invest.

“It does have value in some instances,” Cohen said. “We understand attorneys general don't have unlimited funds.”

The issue should be whether the “purpose is to punish corporations and allow plaintiffs' firms to collect fees, or to change practices of industry,” Cohen said.

“This (hiring of outside firms) is done all the time by attorneys general and general counsel (in governors' offices),” said attorney Matthew Haverstick with Philadelphia-based Conrad O'Brien. “It's been done by officials of both parties for many, many years.”

”In general, sometimes there are consumer issues, regulatory and health issues on such a scale that you need the expertise of outside lawyers who do that all the time,” said Haverstick, whose firm is not employed by Kane. He specializes in white-collar crime.

Governors of both parties have awarded bids to outside law firms.

Republican Gov. Tom Corbett's Office of General Counsel and state agencies spent almost $33 million on outside firms in 2013, records show.

Gov. Tom Wolf, a Democrat, issued an executive order banning no-bid legal contracts, a spokesman said, but that would not apply to the attorney general, an independent office.

Brad Bumsted is Trib Total Media's state Capitol reporter.

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