The Iowa Association of Business and Industry (ABI) is advocating legislation it says would promote more accountability and transparency in the hiring of private law firms by the state.

Originally introduced as House File 563, the legislation would establish caps on contingency fees that can be paid to outside counsel and require additional reporting of these contracts. The measure is intended to remove the perception of any “pay to play” arrangements between law firms that are hired by the attorney general and campaign contributions made by those firms.

“There has been some backroom dealing in other states; we have not had that in Iowa, fortunately,” said John Gilliland, ABI’s senior vice president for government relations. Nevertheless, the organization is still pushing for the legislation. “There’s a renewed interest in transparency by the Legislature,” he said. “With the division between the parties, we’re trying to work on issues where we could find consensus.”

As part of that legislation, the attorney general’s office would be required to post outside counsel contracts online within five business days of approval.

The American Tort Reform Association (ATRA) last year issued a report that gave many states, including Iowa, a failing grade for a lack of “good government” standards in the hiring and use of outside counsel. The organization further contended that in many states, private-sector attorneys are taking in hundreds of millions of dollars in fees from states, while making large campaign contributions to the attorneys general who hired them.

ATRA claims that plaintiff’s law firms have collectively made more than $2 million in direct contributions to attorneys general since 2005 and prior to the 2010 election cycle.

Iowa Attorney General Tom Miller has recently come under fire for receiving campaign contributions from out-of-state organizations representing the financial services industry, after being selected to lead a nationwide investigation into foreclosure practices of major banks. Miller, who hired a West Des Moines law firm that specializes in banking law to assist in that investigation, has said there is no connection between the contributions and that investigation.

Special expertise

Eric Tabor, Miller’s chief of staff, said the issue of hiring outside counsel and contingency fees has not come up since the late 1990s. “The reason I think it has not come up since then is that it’s been extremely rare (to have contingency fees),” he said. “The other reason it has not really been raised very often in the Legislature is that many of the things they’re talking about we already address.”

Private firms are hired for cases in which there is a conflict of interest, such as workers’ compensation appeals cases, or for specialized legal issues such as patent or immigration law. For the latter type of case, the state’s executive council has approved 15 outside counsel agreements in the past three years. The state agency that requests the use of outside counsel typically pays the cost out of its budget; workers’ compensation outside counsel cases are paid from the general fund.

“We have a very talented, diverse staff that does a lot of good work for the state,” Tabor said. “There are just instances in which it’s in the best interest of taxpayers for us to use outside counsel.”

The proposed legislation would limit the total contingency fees that a firm could receive to no more than 25 percent of the first $10 million recovered in a lawsuit, and cap total contingency fees for any one case at $50 million.

Tabor said the attorney general’s office worked with legislators to include an amendment that allows the caps to be lifted or waived if necessary. He noted that all requests are documented by a letter from the attorney general’s office to the executive council and are voted on by those top five state officials in public meetings.

In the tobacco settlement reached in 1999, the state paid approximately $44 million in contingency fees to four law firms. Since then, the state has received approximately $70 million a year from that settlement, “and that goes on for as long as people smoke in Iowa,” he said. “As the years go by and we get more and more in the settlement, that contingency fee looks smaller and smaller.”

Tabor pointed to another contract as an example. In a lawsuit filed in 2007 against the pharmaceutical industry, Miller alleged that the companies inflated drug prices they charged the state for Medicaid patients.

“By contracting with a firm in New York City that has familiarity with these cases, we’ve been able to bring in millions of dollars to the state that otherwise would not have been possible,” Tabor said.