House Hearing, 112TH Congress - Contingent Fees and Conflicts of Interest in State Ag Enforcement of Federal Law
House Hearing, 112TH Congress - Contingent Fees and Conflicts of Interest in State Ag Enforcement of Federal Law
House Hearing, 112TH Congress - Contingent Fees and Conflicts of Interest in State Ag Enforcement of Federal Law
HEARING
BEFORE THE
FEBRUARY 2, 2012
(
Available via the World Wide Web: http://judiciary.house.gov
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON
72692 PDF
2012
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SUBCOMMITTEE
ON THE
CONSTITUTION
(II)
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CONTENTS
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 .......................
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 .....................................................
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WITNESSES
The Honorable William McCollum, Jr., former Florida Attorney General,
Partner, SNR Denton
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................
Amy Widman, Assistant Professor of Law, Northern Illinois University College of Law
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................
James R. Copland, Director and Senior Fellow, Center for Legal Policy, Manhattan Institute for Policy Research
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................
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15
112
(III)
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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.
Todays 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 AGs 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 AGs 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 overcom(1)
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pensate 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
lawyers 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 AGs election campaigns. State AGs 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 AGs 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 AGs power to enforce Federal laws without restricting them from outsourcing the work on a
contingency basis.
I expect todays 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 AGs 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.
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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 industrys 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:]
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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 Floridas attorney general to conduct open bidding for contingency fee contracts and provides for caps on potential attorneys
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 didnt
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 Commerces 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
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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 Floridas 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 plaintiffs attorneys associated with it.
I worry about pay for playthe 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 AGs in HIPPA, truth in
lending, and most recently the Dodd-Frank bill, which disturbs
most peoplethe potential of thatthe 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 worryand you should too, I thinkthat there could be a proliferation of interpretations even of that rule in the State attorney
generals efforts to gain traction in enforcing this.
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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 dont
have the power to go out and hire plaintiffs 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 Floridathat particular law is one which provides for some limits. It provides, first of all, that the State attorney general has to
find that they dont have the ability, they dont have the resources,
they dont 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.
Thirdfourth, 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 plaintiffs 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 didnt get theiryou know, they should have
gotten a bigger take of that. We shouldnt be paying $3.4 billion in
a settlement like that. That is way too much in attorneys 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 dont 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:]
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TESTIMONY OF AMY WIDMAN, ASSISTANT PROFESSOR OF
LAW, NORTHERN ILLINOIS UNIVERSITY COLLEGE OF LAW
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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 AGs. 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 AGs
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 AGs 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:]
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48
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 generals 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 clients interests in private actions but is frequently in tension with a States 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 generaland 43 of the
State attorneys general are elected officialsthese 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
basisheightens 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 Cordrays securities class action litigation in Ohio.
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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 statutes 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 largescale 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 dont 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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107
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 werent 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 plaintiffs 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 AGs 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 dont have the resources
to be able to go after the bad guys. Any number of these Federal
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laws are not being used now primarily not because people are going
out and looking for contingency fee attorneys, but because they
dont have the capability of getting damages with them, they arent
able to recover costs. And the appropriations in the States often
dont 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 dont have those provisions.
Mr. FRANKS. Thank you.
I suppose if it is being adopted in Arizona, that should end the
debate, but maybe it doesnt. [Laughter.]
Mr. MCCOLLUM. If Arizona and Florida agree to this, it ought to
be done.
Mr. FRANKS. I dont 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 overenforcement 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 cant 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.
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109
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 didnt want to be
preempted. We didnt want things to be taken away from us.
Mr. QUIGLEY. What was the first word? You didnt 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 hiredand 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 wouldnt wish
to segregate those out and tell you otherwise.
Mr. QUIGLEY. Well, but respectfully isnt that what you are asking us to do, sir? Isnt it asking us to sort of uniformly say to the
States this is the way we are goinga 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
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assuming you dont want to go that far and dont want to do that
to the Statesyou 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 dont want to go that route, then at the very least, the
movement in the United States among the Statesand there is becoming an increasing concurrence among AGs, Democrat and Republicanis 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 onlynot 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 doesnt 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 arent 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, isnt 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 plaintiffs 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 dont want any
restraints at all. But the reality is this wasnt 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 AGs. 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 attorneys 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 abilitybecause 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. Dont 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.
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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
dont think there is as much difference between what you argued
then and howI 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:]
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Florida, we generally didnt 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, Missouriand 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 didnt 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 cant 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 doesand I did not maybe go over it in great enough detail, but on the fee part, it says up frontso you know that from
the very beginningit 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
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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 allowthey
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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