[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

                              ----------                              

                            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

                              ----------                              


                       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:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


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    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.]

                                 
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