Why The Pay-to-Sue Trial Bar Loves Pennsylvania

Patrick Gleason Director of State Affairs, Americans for Tax Reform
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The rising trend of state government officials hiring private law firms to sue companies on a contingency fee basis has been a troubling development in recent years.  There are a number of problems with the increasing use of this disturbing practice, which a New York Times report earlier this year referred to as “a flourishing industry that pairs plaintiffs’ lawyers with state attorneys general to sue companies.”

Instead of payment on an hourly basis or set fees, under contingency fee agreements, state governments hire private firms and pay them a percentage of any settlement or winnings a judge orders a defendant to pay. What has become evident in recent years is the high frequency of no-bid contingency fee contracts being awarded to firms that funnel a great deal of money to the campaign coffers of attorneys general.

The pay-to-sue dynamic of contingency fee agreements between private firms and state attorneys general creates an environment where politicians have an incentive to promote frivolous lawsuits, even though they are not in the best interest of the public and make their states less attractive to job creators and investors. Pennsylvania has been among the most welcoming states to the pay-to-sue trial bar over the years. During his eight years in office, former Pennsylvania Gov. Ed Rendell (D) awarded no bid contracts to politically connected firms and this problematic practice continues in the Keystone State today under Attorney General Kathleen Kane (D).

Attorney General Kane has approved a contingency fee contract with Cohen Milstein, a Washington, D.C.-based law firm that aggressively shops questionable contingency fee lawsuits to attorneys general across the country. In Pennsylvania, Attorney General Kane approved a contract with Cohen Milstein to investigate nursing home operators with the intention of collecting evidence to be used in a subsequent lawsuit.

In April, a group of the targeted Pennsylvania nursing home operators challenged the legality of Attorney General Kane’s contingency agreement with Cohen Milstein in Commonwealth Court. The nursing home providers contend that Cohen Milstein is working to compile evidence for a lawsuit based on staffing models that are not applicable under Pennsylvania regulations. Nursing home providers also argue that the contingency agreement infringes on the Department of Health’s oversight authority and prevents the Attorney General’s office from agreeing to a non-monetary resolution.

Many see this contingency agreement, which was awarded to Cohen Milstein and not open to competitive bidding from other firms, as an instance of Attorney General Kane rewarding political allies. Cohen Milstein was a financial contributor to Kane’s 2012 election campaign. In fact, Cohen Milstein is not the only firm that has donated to Kane that stands to make millions from suing companies on behalf of the state. “Four law firms received three no-bid contracts,” the Pittsburgh Tribune reported earlier this year, noting that these firms and their lawyers donated a total of $191,400 to Kane’s campaign from 2011 to 2013.

Cohen Milstein and other plaintiffs firms have made donations across the country to attorneys general to whom they pitch contingency fee lawsuits. The aforementioned New York Times investigation highlighted the pattern of trial attorney contributions to state attorneys general and the awarding of no-bid contingency fee contracts, explaining that “donations often come in large chunks just before or after the firms sign contracts to represent the state.” The lawyers at Cohen Milstein have given over $70,000 to 16 state attorneys general campaigns across the country. These campaign contributions appear to have been lucrative investments. The firm received nearly $7 million alone for the work it has done on behalf of Mississippi Attorney General Jim LaHood. Many legal experts and government watchdogs are calling out the impropriety spurred by no-bid contingency fee contracts between state officials and private firms.

“This has gotten out of hand,” Scott Harshbarger, a former attorney general of Massachusetts, told The New York Times about the rise of no-bid contingency arrangements. Harshbarger cautions against contingency fee agreements, noting the practice “seriously threatens the perception of integrity and professionalism of the office, as it raises the question of whether attorneys are taking up these cases because they are important public matters, or they are being driven more by potential for private financial gain.”

Pennsylvania lawmakers have commendably proposed reforms to address the problematic nature of contingency fee agreements. Rep. Tim Krieger (R-Hempfield) has introduced legislation that would limit contingency fees paid to firms and require such legal contracts with the state be posted online.

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

Pennsylvania legislators should rein in Kane’s practices. Keystone State taxpayers and employers deserve better. Rather than be one of the biggest offenders of the pay-to-sue trend sweeping the nation, Pennsylvania could be a model for how to fix the problem by passing reforms that cap attorneys’ fees, require competitive bidding, and make agreements transparent to the public.

Patrick Gleason is director of state affairs at Americans for Tax Reform