Some states, often through their attorneys general, are entering into lucrative contingent fee contracts with plaintiff law firms who make millions of dollars by representing the rights of the state (and taxpayers), at the expense of alleged wrongdoers, but also of taxpayers whose rights the firms are representing, and usually settling for a substantial cut.
Representing the lucrative rights of large batches of taxpayers or a state government is a great opportunity for the law firms. The value of the case is usually a function of how serious the injuries are, multiplied by the number of victims — getting a package of clients delivered with a bow on them by a government agency is a bonanza. Other law firms run expensive TV ads to solicit plaintiff-clients, others fight with other firms for control of a class action: A state attorney general can deliver seven figure fee opportunities with the stroke of a pen, in exchange for some routine schmoozing.
Of course, a large worry with all this money lying about is why certain law firms get this work and not others. No, these projects aren’t put out for competitive bids. And, yes, there are trails of contributions and other favors from the firms to the politicians or bureaucrats involved. But those are questions about how particular outside firms get the work.
A better question is: Why aren’t the states doing these cases themselves? Even a small state has a large pool of lawyers on salary, probably has more lawyers than the largest law firms (though dedicated to other tasks, too). There’s little or no magic to these cases: States already have lots of lawyers on staff, many of whom are at least as qualified as outside lawyers to try cases and represent the state’s interest. [Part of the issue is that these outside lawyers rarely have the skill or experience they claim, upon closer inspection, and most of their bodies are low-paid, inexperienced temps or contract lawyers.] For any special expertise, they could easily afford to hire hourly experts or even law firms.
With careful management, the states could make limited use of outside expertise as needed and net far more of the recovery for taxpayers from these cases and circumvent this whole unsavory mess, as reported in stories like this:
Plaintiffs law firm Cohen Milstein Sellers & Troll [apparently a Freudian slip — it used to be “Toll”] has donated more than $70,000 to various state attorney general campaigns in the last five years.Since 2010, Cohen Milstein has donated $71,000 to 16 different campaigns, according to a search of FollowTheMoney.org. Of those candidates, 13 would go on to win their state’s general election.
Some of the firm’s largest donations went to: Missouri Attorney General Chris Koster, $5,000; Oregon Attorney General Ellen Rosenblum, $10,000; Pennsylvania Attorney General Kathleen Kane, $10,000; and New Mexico Attorney General Hector Balderas, $5,000. [While any contribution might be for a dubious purpose, these amounts strike me as “polite” at best — people who rub elbows with politicians and their henchmen are hit up for contributions all the time and these are not enough to be exceptional.]
Other current attorneys general to receive contributions from the firm in the last five years include: Kentucky Attorney General Jack Conway, Mississippi Attorney General Jim Hood, Illinois Attorney General Lisa Madigan, Vermont Attorney General William Sorrell and New York Attorney General Eric Schneiderman.The firm, known for its class action lawsuits, has been hired by a number of state attorneys general, including some of those to whom it donated. …
According to a copy of the firm’s Bank of America [class action case] contract, posted online by the [Mississippi] Attorney General’s Office [which is refreshingly transparent], it is entitled to compensation that shall not exceed the following amounts:– Twenty-five percent of any recovery of up to $10 million; [This should cover the firm’s actual out of pocket spending for attorney and paralegal time, plus real firm overhead — not the inflated “hourly rates” or markups of temps, but the real money spent]
– Twenty percent of any portion of such recovery between $10 million and $15 million; [If the case goes on for a long time, the firm would begin to burn these amounts, too, but then it’s all profit]
– Fifteen percent of any portion of such recovery between $15 million and $20 million; [More profit, if they do a decent job and get a serious settlement after avoiding death by motion]
– Ten percent of any portion of such recovery between $20 million and $25 million; [All profit if they get to this point, though the firm’s inflated “hourly rates” might claim their investment was worth this much or more] or– Five percent of any portion of such recovery exceeding $25 million.The firm also is entitled to “reasonable and necessary costs of the investigation,” including but not limited to travel, witness fees, consultants, accounting and expert fees and expenses. …
The [potential nursing faciity defendants in a Pennsylvania deal] also argue that [State Attorney General] Kane’s delegation of authority to the law firm is improper because it gives the firm a financial stake in pursuing litigation against them.“Cohen Milstein seeks to enrich itself through large contingent fees based on litigation claims made against petitioners in the name of OAG,” they wrote. “The investigation by Respondent Kane, OAG and Cohen Milstein was not prompted by any material consumer complaints to OAG for allegedly insufficient care, but rather was initiated by Cohen Milstein to extract legal fee recoveries, as reported in the New York Times and other sources.”…
Note the steps in the sample contingent fee contract — 25% down to 5%. These percentages are actually quite high for this sort of work, but they are meant to look small in comparison with personal injury contingent fees, which are generally around 33%. That comparison is misleading. But, if you’ve got a personal injury or other single party contingent fee, the idea of steps is a good one.
The real issue with the contingent steps isn’t so much the percentage, it’s the width or depth of the step — the dollars subject to each step, especially the first one of 25% up to $10 million. Cut that in half, to $5 million, and maybe skip down to 15% rather than 20% at that point, and you might have a fairer deal.
The key to a good contingent fee is that it rewards the lawyer handsomely for taking real risk and getting the job done well and fast. Unfortunately most of these deals end up rewarding the firm for selling the client out for a weak settlement after minimal real outlay by the firm.
Business lobbyists have been trying for decades to avoid the consequences of their mistakes by killing consumer and similar laws and also plaintiff law firms in the name of “tort reform” and other anti-lawyer causes. But it used to be up to states, and federal agencies like the FTC, to look out for consumers, too. Starting especially with the Reagan Administration, those agencies, federal, state, and local, were defanged, often by cutting their staff, not just changing the laws. Hiring plaintiff firms to vindicate these rights is a creative way around this problem, so it’s also natural defendants are challenging this development. For me, the better course would be to have government-paid lawyers vindicate those rights to avoid wasting money on having private law firms do what the states used to do and should again be doing in their own name.
Online Story: Cohen Milstein law firm strengthening relationships with state AGs, earning millions