[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
CONTINGENT FEES AND CONFLICTS OF INTEREST IN STATE AG ENFORCEMENT OF
FEDERAL LAW
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON THE CONSTITUTION
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
FEBRUARY 2, 2012
__________
Serial No. 112-82
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on the Constitution
TRENT FRANKS, Arizona, Chairman
MIKE PENCE, Indiana, Vice-Chairman
STEVE CHABOT, Ohio JERROLD NADLER, New York
J. RANDY FORBES, Virginia MIKE QUIGLEY, Illinois
STEVE KING, Iowa JOHN CONYERS, Jr., Michigan
JIM JORDAN, Ohio ROBERT C. ``BOBBY'' SCOTT,
Virginia
Paul B. Taylor, Chief Counsel
David Lachmann, Minority Staff Director
C O N T E N T S
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FEBRUARY 2, 2012
Page
OPENING STATEMENTS
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Chairman, Subcommittee on the
Constitution................................................... 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on the Constitution........ 2
WITNESSES
The Honorable William McCollum, Jr., former Florida Attorney
General, Partner, SNR Denton
Oral Testimony................................................. 12
Prepared Statement............................................. 19
Amy Widman, Assistant Professor of Law, Northern Illinois
University College of Law
Oral Testimony................................................. 28
Prepared Statement............................................. 30
James R. Copland, Director and Senior Fellow, Center for Legal
Policy, Manhattan Institute for Policy Research
Oral Testimony................................................. 48
Prepared Statement............................................. 50
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, Ranking
Member, Committee on the Judiciary, and Member, Subcommittee on
the Constitution............................................... 4
Material submitted by the Honorable William McCollum, Jr., former
Florida Attorney General, Partner, SNR Denton.................. 15
Material submitted by the Honorable Mike Quigley, a
Representative in Congress from the State of Illinois, and
Member, Subcommittee on the Constitution....................... 112
CONTINGENT FEES AND CONFLICTS OF INTEREST IN STATE AG ENFORCEMENT OF
FEDERAL LAW
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THURSDAY, FEBRUARY 2, 2012
House of Representatives,
Subcommittee on the Constitution,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:36 p.m., in
room 2141, Rayburn Office Building, the Honorable Trent Franks
(Chairman of the Subcommittee) presiding.
Present: Representatives Franks, Pence, Conyers, Scott, and
Quigley.
Staff present: (Majority) Holt Lackey, Counsel; Sarah
Vance, Clerk; (Minority) Heather Sawyer, Counsel; and Veronica
Eligan, Professional Staff Member.
Mr. Franks. Well, good afternoon and welcome to this
Constitution Subcommittee hearing on contingent fees and
conflicts of interest in State attorney general enforcement of
Federal law.
Without objection, the Chair is authorized to declare a
recess of the Committee at any time.
Again, I just want to welcome you all here today and
appreciate the Members at least on this side of the aisle for
being here and hope you guys can carry the day when the time
comes.
The rule of law is not just a matter of what the law is.
Who enforces the law and how they enforce it are also
critically important. The rule of law does not require only
fair laws; it also requires that those laws are applied with
integrity, consistency, and accountability.
Today's hearing is about who should enforce Federal law and
how. Specifically, we ask whether Federal law should ever be
enforced by trial lawyers seeking a contingent-fee payday.
Over the past 2 decades, there has been an increase in the
phenomenon of State attorneys general outsourcing their law
enforcement duties to contingency fee lawyers. These State AG's
will hire a plaintiffs' lawyer to sue a business for an alleged
wrong on behalf of all of the people of the State.
The contracts that these State AG's enter with plaintiffs'
lawyers are often secretive, lucrative, and ethically dubious.
Often there is no competitive bidding by various law firms to
ensure that the taxpayers received the best value possible for
their legal representation. As a result, the contracts
sometimes dramatically overcompensate the lawyers. Law firms
representing the States have been awarded contingency fees that
equal as much as $90,000 per hour of work performed on a case.
Many of these cases are not brought based on the
independent judges or judgment by analysis of the State
attorney general as a law enforcement official, but instead,
outside trial lawyers generate the cases and then pitch them to
the State AG. In this way, the lawyer's interest in profit
supplants prosecutorial discretion in deciding when to enforce
the law.
This trend is especially troubling because the plaintiffs'
lawyers who bring these cases are often among the biggest
donors to the State AG's election campaigns. State AG's should
be focused on defending the public and enforcing the law, not
on enriching their political benefactors in the trial bar.
Giving unelected, unaccountable trial lawyers a profit interest
in enforcing the law leads to inconsistent law enforcement and
troubling conflicts of interest. Law enforcement should not be
motivated by profit.
I will use an example, imagine if a city decided that
instead of police officers, it would hire a private company to
enforce its traffic and parking laws and give that company a
percentage of every ticket that it wrote. Does anyone imagine
that this would lead to more consistent or fair application of
the law?
To protect taxpayers from paying unduly high legal fees, to
prevent conflicts of interest and cronyism in law enforcement,
and to protect prosecutorial independence, the executive branch
of the Federal Government has banned Government agencies from
hiring outside counsel on a contingent-fee basis.
Despite this ban on Federal agencies entering contingency
fee contracts, certain statutes adopted by the late Democratic
majority in Congress empower State AG's to enforce Federal laws
by outsourcing the work to trial lawyers on a contingency fee
basis. These provisions of law contradict the general Federal
policy against contingency fees by giving State AG's power to
enforce Federal laws without restricting them from outsourcing
the work on a contingency basis.
I expect today's testimony will demonstrate contingency fee
enforcement of State law by State attorneys general in the past
has been bedeviled by conflicts of interest and, in at least
one case, criminal convictions for corruption. Allowing State
AG's to enforce Federal law on a contingency basis raises the
specter of bringing this corruption and conflict of interest to
Federal law enforcement.
And so I look forward to the witnesses' testimony on the
propriety of allowing State attorneys general to enforce
Federal law on a contingency basis and to any suggestions for
how Congress can protect prosecutorial independence and
neutrality.
And with that, again I thank you all for being here, and I
would now yield to the Ranking Member of the Committee, in this
case, Mr. Conyers, for his opening statement.
Mr. Conyers. Thank you, Mr. Chairman. I am happy to be with
you again.
And I am particularly pleased to see our former colleague,
Bill McCollum of Florida, who spent many years on the Committee
himself. I welcome his presence today.
There are a number of ways we can approach this subject,
and of course, each Member has his own interpretation of it.
But just starting on my statement, which I probably will not
get to page 7 of an 11-page statement in 5 minutes, I will
point out that the Speaker of the House has authorized payment
of up to $1.5 million to outside counsel, a very prominent,
conservative lawyer, to defend the Defense of Marriage Act in
court. And I am sure he will be interested in what all of us
think and say in the course of this hearing.
Now, the most prominent case for hiring outside counsel,
the most famous to me, is the tobacco cases where R.J. Reynolds
made it clear about what they were trying to do, which was
quite inappropriate, and we now went on through outside counsel
and State attorneys general to force the tobacco industry to
compensate for funds used to pay for the public health disaster
caused by smoking, a landmark case.
They also uncovered the industry's corrupt practices,
including promotion of addiction through manipulation of
nicotine levels and efforts to recruit teenage smokers. 46
States eventually joined in the litigation, resulting in a $200
billion payment by the tobacco industry and also a requirement
to dismantle many of the industry groups that spearheaded the
deliberate misinformation.
I have a number of other cases, the most recent being the
former Ohio Attorney General, Richard Cordray, who partnered
with outside lawyers to reach a $475 million settlement on
behalf of Ohio investors who were deliberately misled by
Merrill Lynch. The attorney general Cordray also reached a $700
million agreement with AIG over investor losses, helping to
recoup funds lost by the Ohio Public Employees Retirement
System and the State Teachers Retirement System.
Then we have the Zyprexa case in South Carolina, a $45
million settlement.
And we had the Louisiana attorney general have outside
counsel challenge the tobacco industry in his State.
In addition, I would like to include in my statement a memo
from the Center for Justice and Democracy, which outlines
probably more than a dozen other important cases brought by
State attorneys general with outside counsel.
With that, Mr. Chairman, I will conclude my statement and
thank you very much.
[The information referred to follows:]
__________
Mr. Franks. And I thank the distinguished former Chairman,
and without objection, other Members' opening statements will
be made part of the record.
Let me also add my welcome to Mr. McCollum. He is someone
that was never a colleague while I was here but certainly
someone I hold to be a friend, and he is, as the former
Chairman said, no stranger to this Committee.
Bill McCollum, a partner at the law firm of SNR Denton, was
a 20-year Congressman from Florida and a Member of the
Judiciary Committee. From 2007 to 2011, Mr. McCollum served as
Attorney General of the State of Florida where he spearheaded
passage of the Transparency in Private Attorney Contracts
legislation which requires Florida's attorney general to
conduct open bidding for contingency fee contracts and provides
for caps on potential attorney's fees.
Our second witness is Professor Amy Widman or Widman?
Ms. Widman. Widman.
Mr. Franks. Widman. Forgive me. Professor Amy Widman of
Northern Illinois University College of Law. Professor Widman
teaches torts, administrative law, and legislation. Her
academic interests include research and writings on State
attorney general enforcemenr of Federal law. And we appreciate
you being here, Professor.
Our final witness is Mr. Jim Copland, Director of the
Center for Legal Policy at the Manhattan Institute for Policy
Research. Mr. Copland has researched and written on the
problems associated with State attorneys general outsourcing
law enforcement work on a contingency fee basis.
Each of the witnesses' written statements will be entered
into the record in its entirety. And I would ask that each
witness summarize his or her testimony in 5 minutes or less,
and to help you stay within that timeframe, there is a timing
light on your table. When the light switches from green to
yellow, you will have 1 minute to conclude your testimony. When
the light turns red, it signals that the witness' 5 minutes
have expired.
Before I recognize the witnesses, it is the tradition of
this Subcommittee that they be sworn. So if you would please
stand.
[Witnesses sworn.]
Mr. Franks. Thank you and be seated.
Now, I would recognize our first witness, Mr. McCollum, for
5 minutes.
TESTIMONY OF THE HONORABLE WILLIAM McCOLLUM, JR., FORMER
FLORIDA ATTORNEY GENERAL, PARTNER, SNR DENTON
Mr. McCollum. I had a great pleasure of being on this
Committee, as you noted, for a number of years. While you and I
didn't serve, I have a great respect for you. Former Chairman
Conyers, I guess Ranking Member, you were my very first
Chairman, Subcommittee Chairman. You may remember, 1981-1982.
And I have a lot of fond memories of those days. Congressman
Scott and I did a lot of business together. It may sound
strange. Democrats and Republicans actually worked together. At
least when I was here on this Committee, we did. I hope you
still do.
I am here today, Mr. Chairman, to represent the U.S.
Chamber of Commerce and the U.S. Chamber of Commerce's
Institute for Legal Reform in discussing the issue you have
asked us to talk about, and that is the role of the State
attorneys general in Federal law enforcement today and the
contingency fee contracting issue that goes with that.
I have had, as you might imagine, quite an experience with
that, as recently as these 4 years you described. I was
Florida's Attorney General, and I think I have a pretty good
perspective on it.
And what I am concerned about and what concerns me the most
is that over the last few years, there has been a considerable
expansion of Federal law that provides State attorneys general
with new powers, some of it unexercised, maybe not very
publicly viewable or visible because of that. But the burdens
potentially for business and the public with this duplication
of Federal and State enforcement can be significant, and the
potential for abuse is also significant, especially if there
are contingency fee contracts with private plaintiff's
attorneys associated with it.
I worry about pay for play--the possibility of it. The
appearance of it is even worse. And that is what I have seen in
activities of some of my former colleagues as State attorneys
general. The concern that the public perception, when you make
these deals out of the public scrutiny, that something hanky-
panky is going on is really great.
And so I have had to attempt to address that. In a couple
minutes, I am going to come back to the specifics of what I did
in Florida and what I am promoting as a model program for
contingency fee contracts, which you might wish to examine.
But first, I want to comment broadly on the fact that there
are three things that I think the Subcommittee particularly
should look at in examining this question. I think you should
consider how to create a balanced legal system, one that
protects the public without creating incentives for unnecessary
litigation that impose enormous burdens on private businesses
and consumers, the risk and burdens for business and the public
of the continuing expansion of legislative authority, and the
need for transparency, fee caps, and other safeguards on the
occasions when contingency fee contracts are used.
Let me say at the outset that there are several new laws,
the Consumer Product Safety Improvement Act of 2008, a
provision that expanded the opportunity for State AG's in
HIPPA, truth in lending, and most recently the Dodd-Frank bill,
which disturbs most people--the potential of that--the most.
And just briefly on Dodd-Frank for a moment, it expands, as
you know, the law in the area they call the Consumer Financial
Protection Bureau. Mr. Cordray is now in charge of that, a
former colleague of mine, attorney general. And the powers
given to the States to enforce are explicit, and they are
expected to be utilized. And there are questions about the
definition of what is in fact a consumer violation under that
law. It could be deceptive. It could be unfair, which are two
terms that we have a lot of use in all of the State laws. But
there is a new term called ``abusive.'' An abusive act is not
defined. I am sure that the bureau will eventually promulgate a
regulation or rule trying to define it.
I worry--and you should too, I think--that there could be a
proliferation of interpretations even of that rule in the State
attorney general's efforts to gain traction in enforcing this.
But in the limited time I have, let me summarize what I
think. I think that this Subcommittee should consider whether
or not this continued expansion is a good idea of giving more
power to State attorneys general in other areas of law, whether
or not the Federal rule, which is an executive order that
exists today that prohibits Federal agencies from contracting
on a contingency fee basis should be the rule, maybe
implemented as a contingent rule with all of the powers that
are given to the State attorneys general so they don't have the
power to go out and hire plaintiff's attorneys just as the
Federal agencies cannot.
Or if you consider the way we are doing business now, I
would suggest that the model Transparency in Private Attorney
Contracting Act, which is modeled after a law that I wrote
first as a regulation in my office and then got passed in 2010
in the State of Florida--that particular law is one which
provides for some limits. It provides, first of all, that the
State attorney general has to find that they don't have the
ability, they don't have the resources, they don't have the
capability in-house of doing the litigation.
Secondly, they have to do competitive bidding under their
own rules.
Third, there has to be a determination that is posted that
people can see when they do this competitive bidding.
Third--fourth, I guess it is. We have caps in any contract
with a private attorney of fees, a total cap of $50 million per
matter, but underneath that, it is a scale of 25 percent of the
first $10 million, and then for each $5 million, it scales down
20 percent, 15 percent, down to 5 percent of the balance. We
figured that on $1 billion recovery, which is very large for a
State attorney general to have, you would wind up with the
potential of having attorney fees of $50 million. Roughly that
is what it equates to, $1 billion recovery.
Now, I got involved and interested in this in Florida
because of the tobacco case that Mr. Conyers pointed out. Back
in 1994, Florida was one of the early States to bring tobacco.
It did use plaintiff's attorneys. It used 11 different law
firms. It settled earlier than anyone else. And in the
settlement process, the attorneys got $3.4 billion.
And what is it that is wrong about that?
Well, the taxpayers didn't get their--you know, they should
have gotten a bigger take of that. We shouldn't be paying $3.4
billion in a settlement like that. That is way too much in
attorney's fees.
And secondly, it had a terribly bad appearance. The public
distaste for that was extreme. Former Governor, Lawton Chiles,
a Democrat, was outraged when he realized what had happened.
But in reality, that is what happened.
And so I promulgated this idea and the model has been
expanded a bit. And today I would like to suggest that those
caps and that provision, along with some control provisions,
are in this model. And I don't believe it is in the record. I
am not sure that it came up with my testimony. I would like to
submit a copy of the model act for the record, if I could, Mr.
Chairman.
Mr. Franks. Thank you, Mr. McCollum. Without objection, it
will be entered into the record.
[The information referred to follows:]
__________
Mr. McCollum. Thank you.
[The prepared statement of Mr. McCollum follows:]
__________
Mr. Franks. Thank you for your testimony.
Professor Widman, you are recognized for 5 minutes. Thank
you.
TESTIMONY OF AMY WIDMAN, ASSISTANT PROFESSOR OF LAW, NORTHERN
ILLINOIS UNIVERSITY COLLEGE OF LAW
Ms. Widman. Mr. Chairman and Members of the Subcommittee,
thank you for inviting me to speak today on enforcement of
Federal law by State AG's. I am honored to be here today to
share findings of my research in this area. My background, as
you said, is Assistant Professor of Law at Northern Illinois
University.
The role of State AG's in the context of their enforcement
of State laws is hardly a Federal matter. As such, I would like
to focus my testimony on Congress' role in State enforcement of
Federal law.
I, along with Professor Cox at the University of Minnesota
Law School, recently published the first study examining in
detail the use by State attorneys general of concurrent
enforcement authority in Federal consumer protection laws. Our
research, which is published in the Cardozo Law Review,
confirms that State AG's use their power to enforce the Federal
law responsibly, Federal agencies work cooperatively with the
States in this role, States have not contracted with private
lawyers to enforce any Federal laws throughout the decades of
such enforcement, and the presence of enforcement authority is
a benefit to both citizens and the Federal agencies.
I would like to highlight for the Committee our findings
which I think are important points on which to begin today's
discussion.
At the outset, these enforcement grants are not new. Such
enforcement grants began decades ago, have been passed by both
Republican- and Democrat-controlled Congresses, and signed into
law by every Administration since the mid-1970's.
We focused our research on the 16 consumer protection laws
granting State AG's concurrent enforcement. Of those 16 laws we
studied, three of them have now been incorporated into Dodd-
Frank. So even though our study was conducted as Dodd-Frank was
being signed into law, the results do directly speak to how
State AG's have in the past and might continue to respond to at
least part of the authority granted under Dodd-Frank.
Our findings were surprising in that they did not correlate
with the statements put forth by critics of Federal grants of
concurrent enforcement power.
First, such enforcement grants are used sparingly. In other
words, fears of over-enforcement have not, in fact, played out
during the decades of such concurrent enforcement.
Also, despite alleged predictions to the contrary, the
number of claims has not risen in recent years, nor was there
any indication of any trend toward more aggressive use.
More important for today's hearing, the court documents
show that not one of these cases appeared to be brought in
conjunction with private counsel.
We also found that Congress consistently inserted some
limits to this authority. Dodd-Frank has similar limits,
notably a notice provision allowing a Federal agency to
intervene in any case filed by a State AG, remove such case to
Federal court, and appeal any outcome. These types of
restrictions, coupled with our data showing cooperation between
State and Federal regulators, effectively preclude any risk
that a State AG will enforce a law contrary to the Federal
agency interpretation. In fact, in passing Dodd-Frank, Congress
had considered and rejected proposals to restrict such
arrangements with outside counsel.
Another somewhat surprising finding from our study was that
Federal agencies were actively and cooperatively involved in
cases brought by State AG's. Our data showed clear
communication and cooperation between the Federal and State
enforcers, and the information and documents gathered as to
cooperation tended to show no Federal-State conflict in
interpretation of the laws.
Congressional grants of concurrent State enforcement powers
have proven to be a benefit to both citizens and Federal
agencies. It appears from the data that States approach their
enforcement role as primarily a means to supplement and support
Federal enforcement. It is also clear that Congress chose to
grant State AG's these enforcement powers under these
particular laws in order to increase enforcement. If Congress
were to grant authority with one hand and limit it with the
other through regulation of contingency fee agreements, which
in turn could hypothetically mean that a State AG could not
bring a viable enforcement action due to lack of resources, it
would amount to an enforcement authority on paper but without
any practical significance.
Given the clear benefits that such concurrent enforcement
can provide for Congress, Federal agencies, and ultimately
citizens, coupled with the lack of any instance of abuse, there
is no reason for Congress to address such grants of enforcement
authority now any differently than they have in the past.
I would like to point out here actually that from 1990 to
1999, 11 such statutes were passed with these Federal grants of
authority to States to bring enforcement action, and from 2000
until the present, there have only been seven. So, in fact, the
use of these grants has not increased in recent years.
Whether and how particular States respond to critics of
contingency fee arrangements between State AG's and private
counsel is a subject best handled within the realm of State
governments.
Thank you for your time this afternoon, and I would be
happy to answer any of your questions.
[The prepared statement of Ms. Widman follows:]
__________
Mr. Franks. Thank you, Professor.
And now, Mr. Copland, we will recognize you for 5 minutes,
sir.
TESTIMONY OF JAMES R. COPLAND, DIRECTOR AND SENIOR FELLOW,
CENTER FOR LEGAL POLICY, MANHATTAN INSTITUTE FOR POLICY
RESEARCH
Mr. Copland. Thank you, Mr. Chairman, Representative
Conyers, and other Members of the Subcommittee, for your
invitation to testify today.
In my research, I have found that contingent-fee litigation
entered into between States and private counsel can raise
significant conflicts of interest and other ethical concerns.
And I fear that the Federal delegation of enforcement authority
to State attorneys general might magnify these concerns and
expand their scope.
Whenever there is concurrent enforcement authority held by
State attorneys general over Federal law, there is a risk of
enforcement overreach. Even if the Federal authorities and 49
out of the 50 State attorneys general agree that conduct did
not run afoul of a Federal law, a single State AG could, in
effect, dictate national regulation for the rest of the
country.
These risks are substantially heightened when States are
permitted to contract out enforcement to private lawyers on a
contingent-fee basis. As the Chairman stated at the outset, in
practice, these State lawsuits are contracted out, often
conceived by private lawyers themselves who approach the State
attorneys general with ideas, rather than having ideas that are
generated and originated out of the State attorneys general's
offices.
Moreover, whereas State officials, acting in the public
interest, would often prefer to balance a variety of concerns,
private attorneys who operate on contingent-fee agreements have
a financial incentive to maximize money recoveries, an
incentive that would be congruent with a client's interests in
private actions but is frequently in tension with a State's
public interest role.
And indeed, when you look at the awards and settlements in
State-sponsored contingent-fee lawsuits, they often total in
the millions and sometimes billions of dollars, as
Representative Conyers was alluding to in his opening remarks.
Essentially this amounts to a huge diversion of funds from
State governments to private counsel.
Moreover, because these sums often go to the current and
future campaign donors of the State attorneys general--and 43
of the State attorneys general are elected officials--these
arrangements can create at least the appearance of a ``pay to
play'' arrangement, an appearance of impropriety. That a number
of States have no formal process whatsoever for overseeing
private attorney contracts--and many State attorneys general
have doled out work on a no-bid basis--heightens these
concerns.
I note in my written comments in more detail the recent
history of States contracting out with private counsel on a
contingent-fee basis and how it has been rife with abuse,
including in the examples of tobacco litigation, the Zyprexa
litigation that the Representative referred to, and other
litigation including the former Attorney General Richard
Cordray's securities class action litigation in Ohio.
I would also like to point out that under Executive Order
13433, Federal agencies are prohibited from entering into
contingent-fee arrangements with outside counsel, and that is
the case even though the potential for abuse is significantly
greater for State than for Federal prosecutors, given that most
State AGs are elected officials subject to fund-raising
pressures.
Among recent Federal legislation that creates this
concurrent State enforcement authority, Dodd-Frank, in my
opinion, is particularly prone to potential abuse, both due to
the statute's scope, which basically includes the entire U.S.
financial industry, and to the relatively untrammeled lack of
supervision existing for the new Consumer Financial Protection
Bureau. And this bureau can promulgate regulations that State
AGs might, in turn, enforce. It is rather uniquely insulated
from congressional oversight.
Now, my fellow witness, Amy Widman, as she noted, along
with Prentiss Cox, has done a survey of 16 Federal consumer
protection statutes and concluded that, ``neither over-
enforcement nor inconsistency with Federal regulators is
apparent.'' And she has extended that argument in her written
comments and again in testimony today, going further than she
did in her academic work, saying that this ``effectively
precludes any risk.''
I simply disagree that the conclusions drawn by Widman and
Cox follow from their data. Many of the most significant laws
they examined are extremely new, including Dodd-Frank, which
has just been passed and was just being passed when they wrote
their paper.
Moreover, they exclude from their data set the potential
large-scale claims invoking Federal law in the antitrust and
environmental arena, not to mention State-led actions invoking
Federal securities law where these abuses have been rife. The
laws they study instead generally involve uncontroversial
provisions applying to a narrow set of businesses, namely
telemarketers, abortion clinics, boxing promoters,
pornographers, sports agents, and moving companies. So I don't
think it is a clear analogy with what we are talking about,
with something with the breadth of Dodd-Frank.
In conclusion, I just want to say that I think Congress
should consider what I would deem a modest step, and that is
the step of codifying Executive Order 13433 and making that
Federal rule apply equally to any State concurrent enforcement
authority of Federal law.
I welcome any questions.
[The prepared statement of Mr. Copland follows:]
__________
Mr. Franks. Well, thank you all very much.
I am going to go ahead and begin the questioning time by
recognizing myself for 5 minutes.
Mr. McCollum, when you were Attorney General in Florida,
did members of the plaintiffs bar reach out to you to, as it
were, pitch new lawsuits for you to file?
Mr. McCollum. Chairman Franks, they did, not frequently,
but there were a half a dozen times, especially with regard to
a rather unique problem with Florida and several other States
dealing with sales tax issues and whether or not Expedia,
Travelocity, those online travel agencies, were paying their
appropriate share of the State sales tax laws. We ultimately
decided that we weren't going to go that route. We decided to
try to go through and get a determination by the court
separately on our own.
But I will say to you that there are cases that are big
enough, and there conceivably can be for State attorneys
general where you do have to go outside, and there are
conceivably cases where it is appropriate to use a plaintiff's
contingency fee law firm. But if you do, I think they ought to
have the restraints that I mentioned to you in this model,
Transparency in Private Attorney Contracting. I am not so sure
that is the same when you are giving this authority to the
States, though, from a Federal law, which of course is a
different horse.
Mr. Franks. Well, when you give model legislation and the
guidelines that you have put in the record here, that is
especially helpful because it is experienced and kind of tried
by the fires of reality.
So I want to ask a question that would be to all of you. In
your experience and your concern here, you understand that the
primary concern that we have here is to try to reach justice
ultimately and to prevent overcharging the taxpayer for certain
legal services and to try to make sure that we maintain
prosecutorial independence so that fairness and absence of
corruption in general is obtained.
So I would start with you, Mr. McCollum. If you could put
just one provision that you think would improve the existing
legislation, where we are now, what is one thing that you would
do. I suppose it would have to reflect one of your primary
concerns with our present circumstance, and if you could point
that out and say here is my main concern and here is how to fix
it, what would be just one thing that you would say would be
your----
Mr. McCollum. Well, the one thing I would do would be to
adopt this model system, which, by the way, is being promoted
in the States. 10 States, including yours, have adopted a
version of this, and the Chamber of Commerce is promoting it
now around the country with State AG's to have them sponsor it
in their legislatures. I think if you could adopt that onto the
Federal laws saying in every case where there is a Federal
right being given to enforce a Federal law to a State attorney
general, that they have to abide by this. Of course, they can
do as they wish on State laws, but this is the Federal laws.
And I would add one other thing while you have given me the
forum here. One of the great problems that State attorneys
general have, especially in smaller States, is they don't have
the resources to be able to go after the bad guys. Any number
of these Federal laws are not being used now primarily not
because people are going out and looking for contingency fee
attorneys, but because they don't have the capability of
getting damages with them, they aren't able to recover costs.
And the appropriations in the States often don't appropriate
the monies, and the way that consumer protection works is that
you have got to be able to recover costs of your lawyers and
the time and all and the Federal laws that give these
enforcement powers don't have those provisions.
Mr. Franks. Thank you.
I suppose if it is being adopted in Arizona, that should
end the debate, but maybe it doesn't. [Laughter.]
Mr. McCollum. If Arizona and Florida agree to this, it
ought to be done.
Mr. Franks. I don't know how you could do better than that.
But, Professor Widman, what would be your main concern with
the present circumstance, and what would be your answer to
respond?
Ms. Widman. Yes. To the extent that this is entirely
hypothetical, as we have never had a contingency arrangement
under the State enforcement of Federal law, I think
transparency is important. But I would define transparency as
open bidding, and I would think that it would need to be
applied to both contingency and hourly. If transparency is the
goal, it makes no sense to focus purely on contingency fees.
And so that would be my answer there.
I would also like to say there are damages and costs in the
statutes that we studied. So I would just like to clarify that,
that some of the State enforcement grants that exist on the
books right now do allow for damages and costs.
Mr. Franks. Thank you.
Mr. Copland, main concern and best response.
Mr. Copland. Well, my main concern is the potential for
over-enforcement and the appearance of impropriety, the quality
of Federal justice. Your interest here is really the Federal
law. I agree with Professor Widman that it is not appropriate
for Congress to come in and try to dictate to States how to
contract when you are enforcing State law, but when it comes to
Federal law, we have an executive order, 13433, which says you
can't use contingent-fee contracts with outside counsel to
enforce Federal law. I think the same rule ought to apply to
the States. And that is probably where I depart from General
McCollum. Rather than trying to implement what I think is a
very good reform at the State level, I would just extend that
executive order, make it a Federal statute, and apply it
equally for all enforcement of Federal law. Obviously, if State
AGs want to bring enforcement actions under State law using
contingent-fee agreements, that is a different matter.
Mr. McCollum. If I might, Mr. Chairman. The Chamber of
Commerce would concur with Mr. Copland on that point. I simply
suggested an alternative that I think is viable and I know a
lot about it because I wrote it.
Mr. Franks. Yes, sir.
Well, thank you all very much. Very compelling.
I would now recognize Mr. Quigley for 5 minutes.
Mr. Quigley. Thank you, Mr. Chairman.
Mr. McCollum, I appreciate your candor in your testimony
referring to the letter sent to Senators Dodd and Shelby, Frank
and Bachus, November 4, 2009. But quite honestly, I think the
letter is a little stronger than you sort of refer to now. It
says, permitting States who enforce their own consumer
protection laws while setting minimal Federal standards for all
will encourage interested States to, quote, test drive
innovative, new ideas and concepts, just as many State
attorneys general did with the Bank of America in crafting the
Countrywide settlement so as to focus on loan modifications and
again a concern that State innovation may lead to a multitude
of conflicting State requirements is misplaced. History has
shown only a small number of States typically take advantage of
the opportunity to move beyond Federal protections. Finally, if
uniformity is to be achieved by sacrificing consumer
protection, the very real cost to consumers must be weighed in
the balance. Weakened consumer protections and limited
enforcement authority already have damaged many consumers. It
is a lot stronger than, I would suggest with respect, the
reference you make here.
I mean, I understand that it is not a perfect comparison.
This is a pretty good signal that the States are doing okay
with this.
Mr. McCollum. Well, Mr. Quigley, if I might respond. I
would say to you that the primary concern of my fellow
attorneys general and I at the time that letter was written was
that the Dodd-Frank law was going through. It was going to
happen. And we always are very protective of our powers, our
rights, and we didn't want to be preempted. We didn't want
things to be taken away from us.
Mr. Quigley. What was the first word? You didn't want to be
what?
Mr. McCollum. And we preferred concurrence which would be
giving us the equal power at least to share in this because we
saw that with the new agency being created, there was going to
be this huge Federal role. And we currently, at that time, were
doing much of the same things that this new law is doing. It
simply federalized it. So it was a better choice to not take
those powers away.
Mr. Quigley. Was it the problem of outsourcing at all? I
mean, you have outsourced. You outsource services on a non-bid
basis.
Mr. McCollum. Well, let me say to you that every State
attorney general is different, and their rules are different.
In Florida, we were a fairly large State, 400 lawyers. We did
almost everything in-house. I think I only hired--and frankly,
I only continued the contract of one outside counsel, and that
was for a fee basis rather than the contingency fee. But there
are smaller States that have to join other States. There are
multi-State actions. There is a cooperative effort with the
Justice Department. I wouldn't wish to segregate those out and
tell you otherwise.
Mr. Quigley. Well, but respectfully isn't that what you are
asking us to do, sir? Isn't it asking us to sort of uniformly
say to the States this is the way we are going--a one size fits
all, given that their financial capabilities, their levels of
expertise, their abilities frankly are quite disparate?
Mr. McCollum. Well, if I might say so, you certainly can
argue that point with regard to whether or not you impose the
Federal rule that Mr. Copland talked about, which does prohibit
private attorney contracting for contingency fee. I am
suggesting to you that assuming you don't want to go that far
and don't want to do that to the States--you have every right
to do that because that is what the Federal rule is for Federal
law with Federal agencies, and you are talking about enforcing
Federal law here.
But if you don't want to go that route, then at the very
least, the movement in the United States among the States--and
there is becoming an increasing concurrence among AG's,
Democrat and Republican--is that there needs to be a
Transparency in Private Attorney Contracting, which includes
some fee caps, includes putting stuff up on the Web, includes
competitive bid, and includes a clear provision that some State
supreme courts have ruled on that said the attorney general has
an obligation to maintain control over litigation because he or
she represents the State and the people. And those are things
that are all written into this model that I propose to you that
you might adopt in this case only--not to impose it on the
States for State matters, but only for Federal law where the
Federal Government is giving the enforcement powers to the
States just for those. Then the States can decide on their own
whether to adopt this for other matters.
Mr. Quigley. Yes, but even there, you are limiting some of
these States with a uniform provision. If what you say is true,
then I would argue Congress doesn't have to do anything. But
there is a difference between transparency and there is a
difference between oversight and dictating one of the points
that you made which is fee caps. All of a sudden, you are
probably going to be limiting who is going to do this work for
you. And these folks aren't competing against a very small
entity. With Dodd-Frank, with the tobacco companies, they were
competing against some extraordinarily influential, powerful
people who had extraordinary resources too. I mean, isn't this
a little bit about leveling the playing field?
Mr. McCollum. Let me respond by telling you this little
story. This was a rule in the office before it was a statute. I
asked it to be codified. I had lots of the most famous
plaintiff's lawyers in the country come knock on my door
perfectly willing to operate under these fee caps. And I proved
my point. We marketed it out there calling up privately saying
would you really do this. Now, the official story, of course,
of the trial lawyers bar is we don't want any restraints at
all. But the reality is this wasn't a big thing on their plate
because the $50 million is a huge amount, and when you start
seeing these even larger fees that are recovered, it is
actually bad for the profession. It is certainly bad for the
AG's. And I think the taxpayers are owed the obligation from
the government, where you do have the opportunity to restrain
it, to make sure that they get the benefit of these recoveries,
that you are not paying out so much in attorney's fees, as long
as you can get the attorneys to do the work. And this is not
too low to do that.
Mr. Quigley. But as a State official, did you want Congress
telling you that, or did you want the ability--because you
yourself began this conversation by saying there is such
disparate differences between what a small State can dictate
and what a larger State with greater resources and
sophistication can. Don't you want to give them the opportunity
to say, well, all right, we think fee caps make sense? And if
that is what they want to do, that is their decision. It is a
whole different story when we are dictating.
Mr. McCollum. I think you are not dictating it to them. You
are just telling it to them with regard to their using Federal
law in the cases where they are actually doing Federal work for
you, for Congress. You have the right to do that. I would never
want you to tell me as a State attorney general what to do with
my State law, and that is why I wrote the letter, the one you
were quoting.
Mr. Quigley. And I will finish by saying this story as
well. I just don't think there is as much difference between
what you argued then and how--I would argue contradictory now.
Abraham Lincoln argued before the Illinois Supreme Court in the
morning, came back in the afternoon on a different case and
argued the exact opposite. One of the justices noticed that and
he said, well, I have had time to think about it since then. So
I think we have a little bit of that in the consideration.
But I would seek, Mr. Chairman, if I could, without
objection, a copy of the letter that I have referenced from the
National Association of Attorneys General dated November 4,
2009, please.
Mr. Franks. Without objection.
[The information referred to follows:]
__________
Mr. Quigley. Thank you.
Thank you, sir.
Mr. Franks. Thank you, Mr. Quigley.
And I now recognize Mr. Scott for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman. Mr. McCollum, it is
good to see you again.
Mr. McCollum. It is good to see you.
Mr. Scott. In your legislation or guidelines, you mentioned
the requirement to find that you do not have the resources to
fight the battle. How often does that happen?
Mr. McCollum. It happens. It depends on the size of the
State again and the resources. Each State differs a lot,
Congressman. In Florida, we generally didn't have a problem
with getting the job done. I had a great consumer protection
division and did the unfair and deceptive trade practice, the
little FTC laws, all the time, and we did great things. Like
with the State of Illinois, we did Countrywide and got huge
settlements. We did AT&T and Verizon and went up against the
big boys. But in your smaller States and even medium-sized
States, Kansas, Missouri--and I know that because I have worked
with General Koster. By the way, he as a Democrat has accepted
this model, and he feels it helps protect the image of the
office and the feelings that might be there because he does do
contingency fee contracting.
But I didn't have a problem in my office of needing to go
outside. I can see where I would occasionally. It might happen.
In securities litigation, you do have to. There is not that
expertise in the office.
Mr. Scott. Your guidelines require a written
representation, a competitive bid, detailed records, a cap, and
posting on the website. Is that limited just to contingent-fee
outsourcing?
Mr. McCollum. In our rule, it was because that was the area
where the most apparent problem with appearances was. In other
words, the worry that everybody has is that you are doing
something on the side with somebody. We certainly were posting
things, as far as our office was concerned, with regard to non-
contingency cases too. Posting on the Web became the thing
while I was attorney general.
By the way, Florida is a little different than some States.
We have a sunshine law that we started down there. Everything
is public. I can't sneeze without it being public.
Mr. Scott. As you indicated, the same problems would occur
whether there is a contingent fee or an hourly rate or a flat
fee.
Mr. McCollum. It could but frankly the fee arrangements are
not nearly as explosive because the amount of money going to
the attorneys is not as often huge quantities. You know, you
take a percentage of a recovery in these big cases, securities
cases or pharmaceutical cases or others. That is the issue. And
there are going to be cases where that contingency fee is
perfectly appropriate. I want to reiterate that with you.
Mr. Scott. When do you calculate the appropriateness of the
fee? Waiting until the case has already been won seems like an
inappropriate time to ascertain whether or not it is a
reasonable fee. It is when the contract is made. It would be
like waiting until someone has won a golf tournament and then
ascertaining whether $1 million is a reasonable fee for 4 days'
work. Well, you know, you should have said that before you won
the tournament. When you write the contract, if it is
reasonable then, it ought to be reasonable whatever the result
is.
Mr. McCollum. Well, I agree with you on that, and that is
why what this does--and I did not maybe go over it in great
enough detail, but on the fee part, it says up front--so you
know that from the very beginning--it is going to be 25 percent
of the first $10 million that is recovered, 20 percent of the
next 5, so on down the line, and you know what your limits are.
Mr. Scott. The reasonableness of that you ought to
calculate at the beginning because that may be unreasonable. It
may be a very easy case, which means those amounts may be
unreasonable. It may be very complex and very unlikely to
recover anything at all, in which case those fees may be
inadequate to attract reasonable----
Mr. McCollum. Remember, Congressman Scott, you are on the
right end of it, the last statement you made. These are caps.
The attorney general is perfectly in his bounds to have a more
restrictive contact. It is still negotiable. But $50 million is
a $1 billion recovery in our experiences for a single State.
But if you have multiple States together, by the way, it would
be $1 billion a State.
Mr. Scott. It also depends on how much work is done.
Professor Widman, can you describe why a contingent-fee
arrangement may be a good thing?
Ms. Widman. Well, contingency-fee arrangements allow--they
are no-risk. So these sorts of cases are high-risk cases. So
instead of using taxpayer money to fund what may be a very
viable claim but risky precisely for the reasons that we have
discussed, that a small State may be going up against a very
well-funded defense team, therein lies the risk. The risk is
not the novelty of the claim or anything like that, but it is
the reality of the balance of power. And so contingency fees
allow, at no risk to taxpayer money, the ability for a State to
rectify those abuses.
Mr. Franks. Well, I thank all of you and I thank certainly
the Members here. I come away more informed than I was, and I
am, again, very grateful to all of you for your testimony.
Without objection, all Members will have 5 legislative days
to submit to the Chair additional written questions for the
witnesses which we will forward to the witnesses and ask them
to respond as promptly as possible so that their answers may be
made part of the record.
And without objection, all Members will have 5 legislative
days with which to submit any additional materials for
inclusion in the record.
And with that, again, I thank all of you and the Members
and the observers.
And this hearing is adjourned.
[Whereupon, at 3:24 p.m., the Subcommittee was adjourned.]